Pediapharm Inc.
TSX VENTURE : PDP

Pediapharm Inc.

June 28, 2017 08:00 ET

Pediapharm Announces Annual Audited Financial Results, Enters First Full Year With 3 Additional Products

Fourth Quarter Revenue Increased by 155%

MONTREAL, QUEBEC--(Marketwired - June 28, 2017) - (TSX VENTURE:PDP)

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

Pediapharm Inc. (the "Company" or "Pediapharm") is pleased to announce its annual audited results for the year ended March 31, 2017. All dollar amounts are expressed in Canadian currency and results are reported in accordance with IFRS accounting principles.

KEY HIGHLIGHTS-PERIOD ENDED MARCH 31, 2017

Quarterly revenue of $1,658,788 vs $650,320 last year, representing an increase of 155% including:

  • 41% increase from NYDA®
  • 22% increase from Naproxen Suspension
  • Revenue from Rupall™, launched in late January 2017, was in line with Management's estimate

Total annual revenue of $6,207,139 vs $3,750,236 last year, representing an increase of 66% including:

  • 29% increase from NYDA®
  • 67% increase from Naproxen Suspension
  • Revenue from Relaxa™, which was added to the Company's portfolio in late September 2016, was in line with Management's estimate of approximately $3 million on an annual basis
  • Revenue from Rupall™, launched in late January 2017, was in line with Management's estimate

In May 2017, the Company closed a non-brokered private placement of $5,000,000 in trust with a company owned by Gerard Leduc, a globally known pharmaceutical executive.

Net working capital of over $3,490,000. On a proforma basis, the Company's working capital would exceed $8,000,000 including the equity financing.

Relaxa™ was transitioned to Pediapharm in late September 2016.

Rupall™ was launched in late January 2017 and Management is very pleased with the initial results.

Otixal™ was launched in May 2017.

Mackie Research Capital Corporation initiated coverage of Pediapharm in January 2017.

The Company now has over $2.1 million in intangible assets as a result of exclusive in-licensing or distribution agreements it has signed since it started. Of that amount, approximately $1.9 million is related to Rupall™, Otixal™ and Cuvposa™, which have yet to start generating meaningful revenue due to the fact they have either recently been launched, or in Cuvposa's case, its dossier is presently being reviewed by Health Canada.

"We have achieved several key milestones this year with 2 new drug approvals (Rupall™ & Otixal™) and 1 accretive agreement (Relaxa™). As we have stated before, Pediapharm's infrastructure has been built to sustain significant growth as shown by our annual revenue growth of 66% with less than a 1% increase in selling and administrative expenses," stated Sylvain Chretien, President and Chief Executive Officer of Pediapharm. "As we enter our first full fiscal year with three additional products, our plan is to keep growing at a very high rate with minimal increases in operating expenses and to bring the Company into a positive operating cash flow situation in the near future."

FUTURE OUTLOOK

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 approximately $4,200,000 in revenue in fiscal 2017, is expected to reach over $5,000,000 in fiscal 2018 and has the potential to achieve annual peak revenues of $6,000,000 to $8,000,000 within the next two years (IMS data and Management's estimate).

With NYDA®, Naproxen Suspension and Relaxa™ alone, the Company is confident to generate approximately $8.5 million of revenue in fiscal 2018 (year ended March 31, 2018). This does not include revenue from new products launches. Management's objective in the next few quarters is to keep optimizing the Rupall™ and Otixal™ launch investments while keeping a solid balance sheet. While Rupall™ has only been launched in late January 2017, Management is closely monitoring Key Performance Indicators ("KPIs") such as number of physicians prescribing Rupall™, and is very pleased with the results so far. These early 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 $8-10 million within 5-6 years. Regarding Otixal™, which was launched in mid-May 2017, the Company estimates an annual peak sale potential of $4 million within 5-6 years.

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 years to come.

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 $25,000,000 and $30,000,000 within the next 5-6 years. This projected peak sales forecast is based in using IMS data and the Management's estimate in the market share to be captured for each of the product. The following represents projected peak sales for the main products:

PRODUCT INDICATION EST. ANNUAL PEAK SALES (CDN$) (2) (3) LAUNCH DATE OR EST. LAUNCH DATE
NYDA® Head lice treatment $6-8M 2012
Relaxa™ Occasional constipation 4-6M Acquired by Pediapharm in September 2016
Naproxen suspension Juvenile Arthritis - Medical Pain Conditions 1-2M Re-launched by Pediapharm in March 2015
Rupatadine (Rupall™) Symptoms of Allergy - Urticaria 8M-10M January 2017
Cetraxal-Plus (Otixal™) Ear Infection 4M May 2017
Cuvposa™ (1) Severe Drooling - Cerebral Palsy 5M UNDER HC REVIEW -
Est. Approval: Dec 2017 (4)
TOTAL 28-35M
(1) Canadian License which requires Health Canada Approval
(2) Estimated Annual Peak sales is usually achieved within approximately 5 to 7 years of a product launch
(3) Based on Market Data (IMS) and Management's estimates
(4) Based on Health Canada's timelines regarding approval of submitted files

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. The key objective is to generate profitability in a timely fashion while waiting for Health Canada's decision on Cuvposa™, which is expected before October 2017. In parallel, Pediapharm will still assess additional exclusive licensing agreements (commonly known as "in-licensing") as well as potential product acquisitions.

In summary, the Company has a solid cash position to execute its business plan, including the recent launches of Rupall™ in January 2017 and Otixal™ in May 2017. Furthermore, Pediapharm expects continuous revenue growth from Pediapharm's other branded products 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 operating cash flow situation for the year ended March 31, 2019. 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, 2017

REVENUE

For the three months ended March 31, 2017, total revenue reached $1,658,788 compared with revenue of $650,320 in the three months ended March 31, 2016, representing a 155% increase. Revenue from NYDA® increased by 41%, while revenue from Pediapharm naproxen suspension increased by 22%. This quarter also included revenue generated from Relaxa™ as a result of the September 19, 2016 transaction, was in line Management's estimate. For the twelve months ended March 31, 2017, total revenue reached $6,207,139 compared with revenue of $3,750,236 in the twelve months ended March 31, 2016, representing a 66% increases. Revenue from NYDA® increased by 29% to reach approximately $4,200,000, which was in line with Management's estimate and in line with the most recent IMS data NYDA®, which is showing a 35% increase on annual basis (MAT - December 2016). Revenue from Pediapharm naproxen suspension increased by 67%. Revenue generated from Relaxa™ as a result of the September 19, 2016 transaction, was in line with Management's estimate of approximately $3,000,000 on an annual basis.

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, 2017, gross profit reached $712,385, representing an increase of 71% (three months ended March 31, 2016 - $416,672). For the twelve months ended March 31, 2017, gross profit reached $3,428,746, representing an increase of 40% (twelve months ended March 31, 2016 - $2,454,237).

Gross margin as a percentage of revenue was 58% (twelve months ended March 31, 2016 - 70%). The main reason for the lower gross margin percentage is related to Relaxa™. In addition to the fact that it has lower gross margins due to the nature of its product category, there were also non-recurrent expenses as part of the transition of Relaxa™ to Pediapharm, as well as the addition of 2 new Relaxa™ stock-keeping units ("skus") launched in the three months ended March 31, 2017. Over time, with the expected revenue growth from NYDA®, Rupall™ and Otixal™, Relaxa™ will represent a smaller percentage of revenue and hence, Management estimates that total gross margins as a percentage of revenue will improve and ultimately reach 60-70%.

SELLING AND ADMINISTRATIVE EXPENSES

For the three months ended March 31, 2017, selling and administrative expenses reached $1,871,811 (three months ended March 31, 2016 - $1,763,543). For the twelve months ended March 31, 2017, selling and administrative expenses increased by $53,084 to reach $6,803,665, (twelve months ended March 31, 2016 - $6,750,581). While regulatory expenses related to Health Canada dossiers for Rupall™ and Otixal™ have significantly decreased when comparing to last year, the Company made important investments in supporting the January 2017 commercial launch of Rupall™ and the May 2017 commercial launch of Otixal™. These pre-launch and launch investments include the set-up of an advisory board comprised of key opinion leaders across Canada, a medical symposium, in-depth training as well the purchase of external data (IMS) to better understand the market dynamics and ensure successful launches.

With its existing solid infrastructure in place, Management estimates that increases in selling and administrative expenses will remain minimal even with its projected substantial revenue growth in years to come.

OTHER INCOME

In the three months ended March 31, 2017, there was nothing to report as other income. In the three months ended March 31, 2016 the Company sold its US rights to the drug Naproxen Suspension in a transaction valued at approximately US$4.25 million (the "Transaction"). Financial terms of the Transaction included an unconditional payment by the Acquirer of US$2.25 million in cash ($3,134,249), which was received at closing and was recorded as other income. In the twelve months ended March 31, 2017 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.

OPERATING PROFIT OR LOSS

The operating loss for the three months ended March 31, 2017 was $1,117,704 compared to an operating profit of $1,910,221 in the three months ended March 31, 2016. In the three months ended March 31, 2016, the Company benefited from the aforementioned sale of its US rights to the drug Naproxen Suspension, which had a positive impact of $3,134,249. The operating loss for the twelve months ended March 31, 2017 was $789,545 compared to an operating loss of $1,339,717 in the twelve months ended March 31, 2016. The increase in revenue combined with the flat selling and administrative expenses, helped generate an improvement of $1,114,221 over the twelve-month period ended March 31, 2016. In both fiscal years, the Company benefited from the aforementioned sale of its US rights to the drug Naproxen Suspension. The transaction had a positive impact of $2,570,200 in the twelve months ended March 31, 2017 vs a positive impact of $3,134,249 in the twelve-month period ended March 31, 2016.

NET PROFIT OR LOSS

The net loss for the three months ended March 31, 2017 was $1,388,613 compared to a net profit of $1,537,383 in the three months ended March 31, 2016. The net loss for the twelve months ended March 31, 2017 was $1,831,887 compared to a net loss of $2,299,294 in the twelve months ended March 31, 2016. In both periods, the difference between operating loss and net loss is mainly due to approximately $1,000,000 in finance costs. The majority of the aforementioned finance costs are related to the March 31, 2015 private placement of secured, convertible debentures of the Company and share purchase warrants of the Company for aggregate gross proceeds of $5,500,000.

March 31,
2017
(3 months)
March 31,
2016
(3 months)
March 31,
2017
(12 months)
March 31,
2016
(12 months)
Revenue from Products $ 1,642,538 $ 571,570 $ 5,951,474 $ 3,504,696
Revenue from Commissions 16,250 78,750 255,665 245,540
TOTAL Revenue 1,658,788 650,320 6,207,139 3,750,236
Gross Profit 712,385 416,672 3,428,746 2,454,237
Selling and administrative expenses 1,871,811 1,763,543 6,803,665 6,750,581
Other Income - 3,134,249 2,570,200 3,134,249
Operating profit (loss) (1,117,704 ) 1,910,221 (789,545 ) (1,339,717 )
Net profit (loss) (1,388,613 ) 1,537,383 (1,831,887 ) (2,299,294 )
Cash flow from (used in) operating activities (747,391 ) 1,731,941 (1,258,273 ) (1,286,300 )
Cash flow from (used in) investing activities (127,284 ) (124,787 ) (442,124 ) (659,127 )
Cash flow from (used in) financing activities 378 (1,119 ) - 88,151

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; 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 severe drooling, which is under review with Health Canada.

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.

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