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Pediapharm Announces Annual Audited Financial Results – 61% Annual Revenue Growth and 11th Consecutive Year-over-year Quarterly Growth

MONTRÉAL, July 18, 2018 (GLOBE NEWSWIRE) — Pediapharm Inc. (the “Company” or “Pediapharm”) (TSX VENTURE:PDP) (OTCQB:PDDPF) is pleased to announce its annual audited results for the year ended March 31, 2018. All dollar amounts are expressed in Canadian currency and results are reported in accordance with IFRS accounting principles.


KEY HIGHLIGHTS – PERIOD ENDED MARCH 31, 2018

In the three-month period ended March 31, 2018, the Company achieved quarterly revenue of $2,103,439 (three-month period ended March 31, 2017 – $1,658,788), representing an increase of 27%. Highlights for this quarter include:

  • Revenue from Established brands (NYDA®, Relaxa™, Naproxen Suspension) increased by 14%. Despite a reduction in the overall units of headlice treatments in Canada during the January-March 2018 period (IMS-Data January – March 2018), revenue generated from NYDA® increased by 13.4% and kept gaining market share across Canada
  • Revenue from recently launched brands, Rupall™ and Otixal™, respectively launched in late January and May 2017, of over $590,000, which is significantly higher than Management’s original estimate
  • Adjusted EBITDA of ($1,119,984) vs ($1,268,759).

In the twelve-month period ended March 31, 2018, the Company achieved record revenue of $10,009,167 (twelve-month period ended March 31, 2017 – $6,207,139), representing an increase of 61% including:

  • Revenue from Established brands (NYDA®, Relaxa™, Naproxen Suspension) increased by 36%. Despite a reduction in the overall units of headlice treatments in Canada during the April 2017 – March 2018 period (IMS-Data April 2017 – March 2018), revenue generated from NYDA® increased by 8.5% and kept gaining market share across Canada
  • Revenue from recently launched brands, Rupall™ and Otixal™, respectively launched in late January and May 2017, of over $2.3 million, which is significantly higher than Management’s original estimate
  • Adjusted EBITDA of ($2,312,498) vs ($2,973,505)

The Company continued its investments in the recently launched brands, especially with Rupall. Additional investments were deployed to allow the marketing and sales team to focus on the urticaria opportunity since antihistamines, such as Rupall, are used first-line to treat urticaria.

As previously stated and as shown in the fourth quarter, Management expects increases in selling and administrative expenses to be minimal when compared to previous years unless it sees specific opportunities where additional expenses would generate significant incremental revenue. The Company’s plan remains to bring the Company into a positive Adjusted EBITDA situation in the fiscal year ending March 31, 2019.

On November 1st, 2017, Pediapharm announced Health Canada’s notice of compliance (approval) for Cuvposa™ (Glycopyrrolate oral solution 1 mg/ 5 mL) which is indicated to reduce chronic severe drooling in patients aged 3-18 years with neurologic conditions associated with problem drooling (e.g. cerebral palsy (CP)). The Company commercially launched Cuvposa™ in April 2018 using its current infrastructure.

The Company has net working capital of approximately $4.8 million as of March 31, 2018 ($3.5 million as of March 31, 2017).

“We are very pleased with our 11th consecutive quarterly revenue growth vs comparable quarters” stated Sylvain Chretien, President and Chief Executive Officer of Pediapharm. “Established brands such as NYDA and Relaxa, as well as newly launched Rupall and Otixal, have all contributed to the 61% annual revenue growth. We continue to strive for the right balance in investing in our newly launched products while minimizing the use of cash. We believe we have achieved that in the fiscal year ended on March 31, 2018 with our decision to increase our investment in Rupall. While this additional investment had some impact on revenue in the past fiscal year, the real gain takes place this year and for years to come. We are also excited about the commercial launch of Cuvposa which occurred in April 2018 and is being done with our existing infrastructure. We remain very active regarding potential new transactions such as in-licensing agreements and acquisitions. Finally, while seasonality still has an impact on quarterly results, we plan to generate positive adjusted EBITDA, on an annual basis, this fiscal year.”


FUTURE OUTLOOK

The Company has recently launched three new products: Rupall™, Otixal™ and Cuvposa™. Rupall™ was launched in late January 2017 and Management is closely monitoring Key Performance Indicators (“KPIs”), such as number of physicians prescribing Rupall™. These early but very promising results, combined with the on-going positive feedback from key opinion leaders in allergy, confirm Management’s estimate that Rupall™ has an annual peak sale potential of $10-12 million. Otixal™ was launched in mid-May 2017 and the Company estimates an annual peak sale potential of $4 million. In April 2018, the Company commercially launched, using its current infrastructure, Cuvposa™ (Glycopyrrolate oral solution 1 mg/ 5 mL) which is indicated to reduce chronic severe drooling in patients aged 3-18 years with neurologic conditions associated with problem drooling (e.g. cerebral palsy (CP)).

With its existing solid infrastructure in place, Management estimates that increases in selling and administrative expenses will be minimal even with its projected substantial revenue growth in quarters and years to come. Management therefore estimates that the Company will be in a positive adjusted EBITDA situation in the current fiscal year.

Pediapharm has a portfolio of products, which Management believes will enable the Company to reach annual peak revenue of $30,000,000 to $35,000,000 along with projected EBITDA of approximately 30% to revenue. The projected peak revenue forecast is based on using IMS data and Management’s estimate in the market share to be captured for each of the product.

Now that Pediapharm has positioned itself with a strong portfolio of products as shown above, for which all of the regulatory investments are behind, the Company’s core strategy regarding business development has recently evolved to focus more on acquisitions of products with existing sales and on co-promotion for products already approved in Canada. In parallel, Pediapharm still assesses additional exclusive licensing agreements (commonly known as “in-licensing”). The key objective is to generate profitability in a timely fashion.

In summary, the Company has a solid cash position to execute its business plan, including the recent launches of Rupall™ in January 2017, Otixal™ in May 2017 and Cuvposa™ in April 2018. Furthermore, Pediapharm expects continuous revenue growth from Pediapharm’s established brands such as NYDA®, Naproxen Suspension and Relaxa™. Management estimates that the upcoming expected revenue growth and stable operational expenses will bring the Company into a positive adjusted EBITDA situation in the current fiscal year. In parallel, the Company is in the process of assessing potential product acquisitions with the key objective to accelerate its strategy to generate positive cash flow over a short period of time. Pediapharm is a growth company in the high-margin specialty pharmaceutical industry, and when opportunities arise to feed that growth, it may raise incremental capital to provide for necessary funding and flexibility.

Review of operating results for the period ended March 31, 2018


REVENUE
For the three months ended March 31, 2018, total revenue reached $2,103,439 compared with revenue of $1,658,788 in the three months ended March 31, 2017, representing a 27% increase. Revenue from Established brands (NYDA®, Relaxa™, Naproxen Suspension) increased by 14%, including a 13.5% increase from NYDA®. Management also closely monitors data from IMS Health, an audited third-party provider of sales data and the overall units of head lice treatment in Canada has decreased by 8.1% (IMS-Data January – March 2018). Therefore, while the overall market decreases, possibly due to a reduction of headlice outbreak, NYDA keeps gaining market share. Revenue from recently launched brands, Rupall™ and Otixal™, respectively launched in late January and May 2017, reached over $590,000, which is significantly higher than Management’s original estimate.

For the twelve months ended March 31, 2018, total revenue reached $10,009,167 compared with revenue of $6,207,139 in the twelve months ended March 31, 2017, representing a 61% increase. Revenue from Established brands (NYDA®, Relaxa™, Naproxen Suspension) increased by 36%, including a 9% increase from NYDA®. Management also closely monitors data from IMS Health, an audited third-party provider of sales data and the overall units of head lice treatment in Canada has decreased by 11.6% (IMS-Data MAT March 2018). Therefore, while the overall market decreases, possibly due to a reduction of headlice outbreak, NYDA keeps gaining market share. Revenue from recently launched brands, Rupall™ and Otixal™, respectively launched in late January and May 2017, reached over $2.3 million, which is significantly higher than Management’s original estimate.


GROSS PROFIT AND MARGIN
When comparing periods, in addition to focusing on gross profit dollars, it is also appropriate to focus on the gross margin as a percentage of revenue. Since there is no cost of sales related to revenue from commissions, the following gross margin percentages are calculated using cost of sales and revenue from products only. In addition to actual cost of goods and royalties paid to partners, gross margins are impacted by amortization of assets generating revenue, allowances for potential product returns as well as warehouse and logistics expenses.

For the three months ended March 31, 2018, gross profit reached $860,694, representing an increase of 21% (three months ended March 31, 2017 $712,385). Gross margin as a percentage of revenue was 41% (three months ended March 31, 2017 – 42%). Relaxa™, which has lower gross margins due to the nature of its product category, has a negative impact on total gross margin percentages. Recently, the province of Quebec implemented a new regulation on Rx generic drugs, including the Active Pharmaceutical Ingredient (API) of Relaxa™, which had a negative impact on net revenue and gross margin. Over time, with the estimated revenue growth from NYDA®, Rupall™, Otixal™ and Cuvposa, the estimated revenue from Relaxa™ will represent a smaller percentage of total revenue and hence, Management estimates that total gross margins as a percentage of revenue will improve and ultimately reach 60-65%.

For the twelve months ended March 31, 2018, gross profit reached $5,041,626, representing an increase of 47% (twelve months ended March 31, 2017 - $3,428,746). Gross margin as a percentage of revenue was 50% (twelve months ended March 31, 2017 – 53%). The main reason for the lower gross margin percentage is related to Relaxa™, which has lower gross margins due to the nature of its product category. Furthermore, the Quebec Government recently implemented a new regulation on Rx generic drugs, including the Active Pharmaceutical Ingredient (API) of Relaxa™, which had a negative impact on net revenue and gross margin. Over time, with the estimated revenue growth from NYDA®, Rupall™, Otixal™ and Cuvposa, the estimated revenue from Relaxa™ will represent a smaller percentage of total revenue and hence, Management estimates that total gross margins as a percentage of revenue will improve and ultimately reach 60-65%.


SELLING AND ADMINISTRATIVE EXPENSES
For the three months ended March 31, 2018, selling and administrative expenses reached $2,063,415 (three months ended March 31, 2017 – $1,871,811). For the twelve months ended March 31, 2018, selling and administrative expenses reached $7,862,437 (twelve months ended March 31, 2017 - $6,803,665). The increase reflects the Company’s commitment to invest in new product launches while having a minimal impact on operating expenses. Management believes these investments in Rupall™ and Otixal™ are key to the overall success of the Company.

OTHER INCOME
In the three and twelve months ended March 31, 2018, there was nothing to report as other income. In the three months ended June 30, 2016 the Company received the second and final payment of US$2 million in cash ($2,570,200) from the sale of the US rights to the drug Naproxen Suspension in a transaction valued at approximately US$4.25 million.


ADJUSTED EBITDA(1)
Adjusted EBITDA, defined below, for the three-month period ended March 31, 2018 was ($1,119,984) compared to ($1,268,759) for the three-month period ended March 31, 2017. The improvement is mainly due to the increase gross profit driven by a 27% increase in revenue.

Adjusted EBITDA, for the twelve-month period ended March 31, 2018 was ($2,312,498) compared to ($2,973,505) for the twelve-month period ended March 31, 2017. The improvement is mainly due to the increase gross profit driven by a 61% increase in revenue. This was somewhat offset by the additional selling and marketing expenses related to the launches of Rupall and Otixal, which Management believes are key to the overall success of the Company.


March 31, 2018
(3 months)
$
March 31, 2017
(3 months)
$
March 31, 2018
(12 months)
$
March 31, 2017
(12 months)
$
Revenue from Products2,103,4391,642,53810,006,4375,951,474
Revenue from Commissions-16,2502,730255,665
TOTAL Revenue2,103,4391,658,78810,009,1676,207,139
Gross Profit860,694712,3855,041,6263,428,746
Selling and administrative expenses2,063,4151,871,8117,862,4376,803,665
Other Income---2,570,200
Operating loss(1,204,949)(1,117,704)(2,811,472)(789,545)
Net loss(1,021,994)(1,388,613)(3,482,645)(1,831,887)
Cash flow used in operating activities(648,077)(747,391)(3,861,847)(1,258,273)
Cash flow used in investing activities(378,360)(127,284)(727,709)(442,124)
Cash flow from financing activities--4,956,965-

1) EBITDA and Adjusted EBITDA are non-IFRS financial measures. The term EBITDA (earnings before interest, taxes, depreciation and amortization,) does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement IFRS measures by providing a further understanding of operations from management’s perspective. The Company defines Adjusted EBITDA as earnings before financing costs, interest expenses, income taxes, interest income, depreciation of property and equipment, amortization of intangible assets, non-cash share-based compensation, income from sale of asset and impairment of intangible assets. The Company considers Adjusted EBITDA as a key metric in assessing business performance and considers Adjusted EBITDA to be an important measure of operating performance and cash flow, providing useful information to investors and analysts. Adjusted EBITDA for the three-month period ended March 31, 2018 was ($1,119,984) compared to ($1,268,759) for the three-month period ended March 31, 2017. The improvement is mainly due to the increase in gross profit driven by a 27% increase in revenue. Adjusted EBITDA for the twelve-month period ended March 31, 2018 was ($2,312,498) compared to ($2,973,505) for the twelve-month period ended March 31, 2017. The improvement is mainly due to the increase in gross profit driven by a 61% increase in revenue. This was somewhat offset by the additional selling and marketing expenses related to the launches of Rupall and Otixal™.


For the
3-month
period
ended

March 31,
2018
$
For the
3-month
period ended

March 31,
2017
$
For the
12-month
period ended

March 31,
2018
$
For the
12-month
period ended

March 31,
2017
$
Net Loss and Comprehensive Loss(1,021,994)(1,388,613)(3,482,645)(1,831,887)
Add Back:
Depreciation & Amortization (property, equipment, intangible assets)72,745(45,379)231,16251,867
Interest expenses165,613165,000669,167669,168
Convertible debenture interest accretion net of deferred financing fee amortization138,637112,391517,508413,126
Gain on extension of convertible debenture maturity date(475,702)-(475,702)-
Interest income(10,891)(6,483)(39,800)(39,952)
Impairment loss on intangible assets---13,701
EBITDA(1,131,592)(1,163,084)(2,580,310)(723,977)
Income from sale of assets---(2,570,200)
Share-based compensation11,608(105,675)267,812320,672
ADJUSTED EBITDA(1,119,984)(1,268,759)(2,312,498)(2,973,505)

About Pediapharm Inc.

Pediapharm is the only Canadian specialty pharmaceutical company dedicated to serving the needs of the pediatric community. Its mission is to bring to the Canadian market the latest innovative pediatric products with the objective to improve the health and the well-being of children in Canada. Since its debut in 2008, Pediapharm has entered into numerous commercial agreements with partners from Canada and other countries around the world. The Company’s innovative product portfolio includes NYDA®, a breakthrough treatment for head lice; Relaxa™, an osmotic laxative used to treat constipation; EpiCeram®, a non-steroid emulsion for eczema; naproxen suspension, indicated to treat pain and inflammation due to various conditions, including Juvenile Idiopathic Arthritis; Rupall™, an innovative new allergy medication with a unique mode of action; Otixal™, the first and only antibiotic and steroid combination ear drop available in single, sterile, preservative-free and unit-dose packaging; and Cuvposa™, for chronic severe drooling, a condition affecting a significant proportion of cerebral palsy patients.


FORWARD LOOKING STATEMENTS

This news release contains forward-looking statements and other statements that are not historical, including statements pertaining to the management’s expectations of the use of proceeds and the expected timing of the required regulatory approvals. Such forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results to vary materially from the results or events predicted in these forward-looking statements. As a result, investors are cautioned not to place undue reliance on these forward-looking statements.

The forward-looking statements contained in this news release are made as of the date of this release. Except as required by applicable law, the Corporation disclaims any intention and assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking information reflects the current expectations or belief of the Corporation based on information currently available and such information is subject to a number of assumptions, risks and uncertainties including those described under the heading “Risk Factors” in the Company’s Annual Information Form (for the year ended March 31, 2016) available on SEDAR at www.sedar.com and other risks associated with being a specialty pharmaceutical company.


Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.


CONTACT INFORMATION:

Sylvain Chretien, President and Chief Executive Officer
Pediapharm Inc.
Tel.: 514-762-2626 ext. 201
E-mail: sylvain.chretien@pedia-pharm.com

Roland Boivin, Chief Financial Officer
Pediapharm Inc.
Tel.: 514-762-2626 ext. 202
E-mail: roland.boivin@pedia-pharm.com

Frank Candido
Direct Financial Strategies and Communication Inc.
Tel.: 514-969-5530
E-mail: directmtl@gmail.com