Pediapharm Inc.
TSX VENTURE : PDP

Pediapharm Inc.

July 20, 2015 19:00 ET

Pediapharm Announces Annual Audited Financial Results, Announces Officer Change

MONTREAL, QUEBEC--(Marketwired - July 20, 2015) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Pediapharm Inc. (the "Company") (TSX VENTURE:PDP) is pleased to filing of its annual audited financial results ended March 31, 2015. All dollar amounts are expressed in Canadian currency and results are reported in accordance with IFRS accounting principles.

Highlights for the period ended March 31, 2015:

  • In the twelve-month period ended March 31, 2015 ("fiscal 2015"), revenue generated from the sale of Pediapharm branded products (ie excluding revenue from commissions) has increased by 74%. Revenue from commissions, a much smaller line item than revenue from Pediapharm branded products, has decreased by 80% due to the termination of the Company's promotional sales agreements with Sanofi Canada in the first quarter of fiscal 2014.

  • In fiscal 2015, NYDA®, a breakthrough treatment for head lice and its eggs, grew by 95% (vs twelve-month run rate for the period ended March 31, 2014) and reached over $2,000,000 in revenue. With approximately 16.6% market share (IMS data- March 2015) and given the market trends favoring the use of NYDA due to a high level of lice resistance with competitive pesticide-based shampoos, Management believes NYDA is well positioned to reach $3,200,000 in fiscal 2016 and its projected annual peak sales of $6,000,000-$8,000,000 by fiscal 2018;

  • The Company has over $6,700,000 of cash and cash equivalents as of March 31, 2015. This includes a private placement of secured, convertible debenture for aggregate gross proceeds of $5,500,000 completed on March 31 2015 through key strategic investors such as Bloom Burton Healthcare Structured Lending Fund, Knight Therapeutics Inc. and Senvest Capital Inc.

  • The Company has signed 5 NEW AGREEMENTS IN 12 MONTHS:

    • On April 4, 2014, the Company entered into an exclusive supply and distribution agreement with Merz Pharma Canada, Ltd. regarding the Canadian rights to CUVPOSA™ (glycopyrrolate) oral solution intended for pediatric chronic severe drooling (sialorrhea) associated with neurologic conditions such as cerebral palsy. Pediapharm believes that CUVPOSA™ will most likely be the first product to be officially approved in Canada to treat that disease and as such, the Company is hoping to be granted a Special Access Program and a priority review from Health Canada.

    • On July 2, 2014, the Company entered into its first asset purchase agreement by acquiring the Canadian rights of naproxen suspension from Hoffman La Roche (Roche). Roche retains the Naprosyn™ trademark and all product rights to the other oral dosage forms under this brand. This product in its suspension form is only available under prescription (Rx) and is indicated for the treatment of osteoarthritis, rheumatoid arthritis, ankylosing spondylitis, juvenile rheumatoid arthritis and other pain conditions. It was reintroduced to the market in February 2015 as Pediapharm naproxen suspension and is competing in the Nonsteroidal anti-inflammatory drugs ("NSAID") market segment estimated to be at $76,000,000 (IMS data 2013).

    • On October 8, 2014, Pediapharm acquired the exclusive Canadian rights to a novel patented formulation of Ciprofloxacin 0.3% and Fluocinolone Acetonide 0.025% otic solution. Pediapharm intends to register the combination product for 2 indications in adults and children older than 6 months old: 1) acute otitis media in patients with tympanostomy tubes ("AOMT"); 2) acute otitis external (swimmer's ear). In addition to the recent results from two phase III trials in patients suffering from AOMT, Laboratories SALVAT S.A., Ltd has been commercializing this product with success since 2011 in several European countries, where the product captured between a 22% and 28% market share. In Canada, this novel combination product will be competing in a market estimated by management to be approximately at $25,000,000 (IMS data-2013).

    • On December 18, 2014, Pediapharm acquired the exclusive Canadian rights to rupatadine from Uriach y Compañia, a novel second generation antihistamine with a unique profile of anti-inflammatory properties. The Company intends to register both the adult and pediatric products for the following indications: allergic rhinitis and urticaria. It will be competing in a market estimated to be at $105 million; including $17 million from prescriptions (Rx). As a reference, rupatadine tablets are already registered and authorized in more than 70 countries while the pediatric solution is already authorized in 43 countries.

    • On March 9, 2015, Pediapharm entered into an asset purchase agreement regarding the US rights to Roche's naproxen oral suspension. Similarly to the Canadian indications, the product is primarily used for juvenile idiopathic arthritis in children 2 years or older due to its more flexible dose titration based on the child's weight. It is estimated that there are over 60,000 children presently living with arthritis in United States. This prescription of oral suspension product is also indicated for the relief of signs and symptoms of other medical pain conditions. Roche will retain the Naprosyn™ trademark and retains all product rights to the other oral dosage forms under this brand. Pediapharm's plan with this product is to commercialize it through a partner already active in the United States thus receiving down payments and royalty payments.

Recent highlights

On May 5, 2015, the Company announced that it has received a Notice of Deficiency - Withdrawal Letter from Health Canada regarding its new drug submission for Easyhaler Budesonide. The Company's file is eligible for the reconsideration process, which is part of normal regulatory actions available to sponsors. The Company has since filed such a request, as it believes that its filing has enough evidence to support regulatory approval.

On June 8, 2015, Pediapharm and G. Pohl-Boskamp GmbH & Co KG announced the extension of their exclusive Canadian distribution agreement for NYDA until at least 2021. The revised agreement includes additional renewal clauses and similar terms and conditions as were included in the previous agreement. Furthermore, the revised agreement does not contain any material financial changes from the previous agreement.

"With the strong sales performance of NYDA®, the acquisition of Naproxen Suspension in both Canada and in the United States, along with our strong pipeline, we are very optimistic about the future of Pediapharm" stated Sylvain Chretien, President and Chief Executive Officer of Pediapharm. He added: "Our short-term focus on profitability remains a key priority and we remain confident in our ability to reach $35-40 million of annual revenue within the next 5 to 6 years." concluded Mr. Chretien.

The Company's focus remains to execute its commercial plan with existing products, such as NYDA®, a revolutionary treatment indicated for eradication of head lice and its eggs. NYDA® reached over $2,000,000 in revenue in fiscal 2015, is expected to reach $3,200,000 in fiscal 2016 and has the potential to achieve annual peak revenues of $6,000,000 to $8,000,000 by fiscal 2018.

Pediapharm has a product pipeline of secured exclusive agreements which management believes will enable the Company to obtain its corporate annual revenue goal of reaching between $35,000,000 and $40,000,000 within the next 5-6 years. As described below, projected annual peak sales to be generated from existing licenses/products that have not yet been launched and/or require Health Canada approval are estimated at $35,000,000. The Company intends on filing 3 products over the next few months for estimated Health Canada approvals before December 2016.

The chart below contains information on the secured exclusive agreements that are expected to be launched in the next 18 months. This chart is identical to the one presented in the last quarterly MD&A of the Company dated March 2, 2015, except for the following: i) the Canadian Pediapharm Naproxen Suspension, having been launched as planned in February 2015, has been removed from the chart; ii) the US Pediapharm Naproxen Suspension has been added to the chart due to the fact the asset purchase agreement was signed in March 2015; and iii) the Easyhaler-budesonide launch date has been delayed by two quarters due to the aforementioned Notice of Deficiency - Withdrawal Letter from Health Canada regarding its new drug submission.

Pediapharm product Pipeline

PRODUCT PARTNER-COUNTRY INDICATION MARKET SIZE
(CDN $)
EST. ANNUAL PEAK SALES (CDN $) EST.
LAUNCH
Pediapharm Naproxen Suspension USA (#) Acquired from Roche-
USA
Juvenile Rheumatoid Arthritis & Other Medical Pain Conditions Suspension / Liquid: 50-80M (internal estimate)

Tablets: >500M (internal estimate)
5M based on milestone payments and royalties Q-1 2016
Easyhaler-Budesonide (*) Orion-
Finland
Asthma 195M 15M Q-1 2016
Cuvposa (*) Merz Pharma-USA Severe Drooling - Cerebral Palsy 25M 5M Q-4 2016
Cetraxal-Plus (*) Salvat Laboratories-Spain Ear Infection, Swimmer's Ear 25M 4M Q-4 2016
Rupatadine (*) Uriach-Spain Antihistamine (RX indication) 120M 6M Q-4 2016
TOTAL 365M+ 35M
(#) US product to be out-licensed to a US commercial partner

(*) Canadian license which requires Health Canada Approval

Now that Pediapharm has positioned itself with a strong pipeline as shown above, 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. The key objective is to generate profitability in a timely fashion while pursuing the regulatory process of the agreements signed in 2014. In parallel, Pediapharm will still assess exclusive licensing agreements (commonly known as "in-licensing").

Furthermore, before the end of 2016, the Company intends to sign an agreement with a US commercial partner for the selling and marketing of its first product acquisition in the US; namely the Pediapharm Naproxen Suspension. Pediapharm believes that with this agreement, the Company will reach profitability more rapidly.

With the excellent sales momentum of its current marketed products portfolio, including NYDA®, the Company continues to make positive steps towards generating positive cash flow. The recent launch of Pediapharm Naproxen Suspension in Canada, the expected launch Pediapharm Naproxen Suspension in the US through a partner, as well as the anticipated launch of Easyhaler-budesonide in 2016, will positively impact revenue and profitability for years to come. In parallel, the Company is in the process of assessing potential product acquisitions, and strives to add more products to its portfolio within this fiscal year. 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, 2015

For the twelve months ended March 31, 2015, revenues reached $3,068,683 compared with revenues of $4,681,776 in the fifteen months ended March 31, 2014. In the twelve-month period ended March 31, 2015, revenue from sales of Pediapharm branded products increased by 74%. This was offset by a very large negative impact in revenue from commissions, which decreased by over $2,200,000 as a result of the aforementioned termination of the Company's promotional sales agreements with Sanofi Canada.

For the twelve months ended March 31, 2015, selling and administrative expenses increased by $1,885,229 to $8,101,834 (2014 - $6,216,605). The main reasons for this increase are the expenses associated with the additional marketing expenses, in support of the expected revenue and profit growth of NEW products such as Pediapharm Naproxen Suspension in Canada and in the US, as well as NYDA which is expected to keep growing significantly. Furthermore, since 80% of the Company's revenue comes from sales of Pediapharm branded products (2014 - 38%) vs revenue from commissions, expenses such as cost of goods and royalties increase accordingly.

The net loss for the twelve months ended March 31, 2015 was $4,998,949 compared to the $4,079,633 in the fifteen months ended March 31, 2014. The additional efforts in marketing & sales, business development as well as additional efforts associated with the 5 agreements signed in fiscal 2015 are the main reasons for the increased loss.

March 31, 2015
(3 months)
March 31, 2014
(3 months)
March 31, 2015
(12 months)
March 31, 2014
(15 months)
Revenue 406,655 677,969 3,068,683 4,681,776
Selling and administrative expenses 2,289,706 1,772,634 8,101,834 6,216,605
Net loss (1,878,160 ) (1,566,442 ) (4,998,949 ) (4,079,633 )
Cash flow from (used in) operating activities (1,200,010 ) (426,833 ) (4,560,600 ) (2,010,333 )
Cash flow from (used in) investing activities 81,512 154,977 (911,178 ) 93,188
Cash flow from (used in) financing activities 5,194,464 1,252,270 5,193,479 8,409,818

Change regarding an Officer of the Company

The Company also announces that Ashok Bhaseen has advised the Company that he will be resigning from his position as Director, OTC Business Unit effective July 31, 2015 for personal reasons. As a result of this change, the Company has recently restructured its Sales and Marketing department and so the role of Director, OTC Business Unit will not be replaced. Mr. Bhaseen's contribution to the Company over the years has been greatly appreciated and the Company wishes him all the best in his future endeavors.

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; EpiCeram® a non-steroid emulsion for eczema; KoolEffect™ which reduces the symptoms of fever; and VapoLyptus™; a soothing vapour patch of Eucalyptus and Camphor.

FORWARD LOOKING STATEMENTS

This news release contains forward-looking statements and other statements that are not historical. Such forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results to vary materially from target results and 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 described in details at pp. 35 to 41 of the Management Information Circular of Chelsea Acquisition Corporation dated November 12, 2013 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.

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