Pediapharm Inc.
TSX VENTURE : PDP

Pediapharm Inc.

August 18, 2016 08:00 ET

Pediapharm Announces First Quarter Financial Results-Increase of 47% in Revenue and Operating Profit of $1.7 Million

MONTREAL, QUEBEC--(Marketwired - Aug. 18, 2016) -

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 file its first quarter financial results ended June 30, 2016. All dollar amounts are expressed in Canadian currency unless otherwise indicated and results are reported in accordance with IFRS accounting principles.

KEY HIGHLIGHTS - PERIOD ENDED JUNE 30, 2016

  • In the three month period ended June 30, 2016, total revenue reached $893,161 (three months ended June 30, 2015 - $605,642), representing an increase of 47%, including:

    • 57% increase from NYDA®, following the 55% growth from last fiscal year

    • 110% increase from Naproxen Suspension after one year of detailing to physicians

  • In the three month period ended June 30, 2016, the Company achieved an operating income of $1,691,784 compared to an operating loss of $1,396,963 in the three month-period ended June 30, 2015.

  • In the three month period ended June 30, 2016, the Company's selling and administrative expenses were reduced by $275,500, representing a reduction of 15.5% compared with the three months ended June 30, 2015.

  • The Company has $6,499,670 of cash and cash equivalents as of June 30, 2016.

  • On May 11, 2016, the Company received Food and Drug Administration ("FDA") approval regarding the manufacturing site transfer of Naproxen Suspension for the United States market. This approval triggered the second and final payment of US$2 million in cash included in the transaction valued at US$4.25 million regarding the United States rights to Naproxen Suspension.

RECENT HIGHLIGHTS

On July 21, 2016, the Company announced Health Canada's approval of rupatadine (Tablet 10mg and Oral Solution 1mg/mL) for the relief of the symptoms associated with Seasonal Allergic Rhinitis (SAR), Perennial Allergic Rhinitis (PAR) and Chronic Spontaneous Urticaria (CSU) in patients 2 years of age and older. Rupatadine is the first prescription (Rx) antihistamine being launched over the past decade with all 3 indications (SAR, PAR and CSU), including a formulation for children over 2 years of age. It will be launched in the Canadian antihistamine market estimated at $130 million (IMS Data). Moreover, it will benefit from 8.5 years of market exclusivity (ie. no possibility of generics) granted by Health Canada's Office of Patented Medicines and Liaison under section C.08.004.1 of the Food and Drug Regulations.

On August 3, 2016, the Company submitted to the Canadian Health Authorities its regulatory dossier of CUVPOSA™ (glycopyrrolate) oral solution intended for pediatric chronic severe drooling (sialorrhea) associated with neurologic conditions such as cerebral palsy.

"We are very pleased with the financial results of this quarter, with 47% increase in revenue and 15% reduction in selling and administrative expenses." stated Sylvain Chretien, President and Chief Executive Officer of Pediapharm. He added: " With the seasonality associated with head lice treatments, revenue from NYDA, which represents roughly 80% of our total current revenue, has historically been lower in the first two quarters of the calendar year. NYDA's revenue is expected to grow significantly in the upcoming quarters, which will continue to have a positive impact on our bottom line. With our strong cash position and the recent approval of rupatadine, a great innovation to treat the symptoms of allergy and urticaria, our future looks very promising. Moreover, we have 2 other products which we hope will receive Health Canada approval and we continuously assess new business opportunities while remaining disciplined."

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 over $3,200,000 in revenue in fiscal 2016, is expected to reach $4,400,000 in fiscal 2017 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).

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. 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 $15,000,000 (IMS data and Management's estimate).

The chart below contains information on the secured exclusive agreements that are expected to be launched in the next year. This chart has been updated since the last MD&A dated June 27, 2016 to reflect Health Canada's approval of rupatadine received on July 21, 2016.

PRODUCT PARTNER-COUNTRY INDICATION MARKET SIZE (CDN $) EST. ANNUAL PEAK SALES (CDN$) (2) (6) EST. LAUNCH DATE (Calendar Year) (7)
Rupatadine Uriach - Spain Antihistamine (RX Indication) 120M (5) 6M-10M APPROVED
JULY 21, 2016
Cetraxal-Plus (Otixal) (1) Salvat Laboratories - Spain Ear Infection, Swimmer's Ear 25M (4) 4M Q-4 2016
Cuvposa (1) Merz Pharma - USA Severe Drooling - Cerebral Palsy 25M (3) 5M Q-2 2017
TOTAL 170M+ 15M- 19M
(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 prevalence of Cerebral Palsy patients from the Public Health Agency of Canada
(4) IMS Data - December 2014
(5) IMS Data - December 2013
(6) Based on Market Data (see above footnotes) and Management's estimates
(7) Based on Health Canada's timelines regarding approval of submitted files

Now that Pediapharm has positioned itself with a strong pipeline as shown above, for which most 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 pursuing the regulatory process of the agreements signed in 2014. In parallel, Pediapharm will still assess additional exclusive licensing agreements (commonly known as "in-licensing").

In summary, with the recent sale of its United States rights to Naproxen Suspension, the Company has a solid cash position to execute its business plan, including the upcoming launch of rupatadine in the second-half of 2016 as well as the potential launch of Otixal®, assuming Health Canada's approval. Furthermore, the strong revenue growth from Pediapharm branded products such as NYDA®, combined with the reduction of some of its operating expenses, are important steps towards generating positive cash flows. 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 JUNE 30, 2016

REVENUE

For the three months ended June 30, 2016, total revenue reached $893,161 compared with revenue of $605,642 in the three months ended June 30, 2015, representing a 47% increase. Revenue from NYDA® increased by 57% and revenue from Pediapharm naproxen suspension increased by 110%.

SELLING AND ADMINISTRATIVE EXPENSES

For the three months ended June 30, 2016, selling and administrative expenses decreased by $275,571 to reach $1,487,524, (three months ended June 30, 2015 - $1,763,095). The decrease in selling and administrative expenses is mainly due to the fact most of the expenses in business development and medical affairs related to the filing of agreements signed in 2014 occurred in the fiscal year ended March 31, 2016.

OTHER INCOME

In the three months ended June 30, 2016 the Company received the second and final payment of US$2 million in cash 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 profit for the three months ended June 30, 2016 was $1,691,784 compared to an operating loss of $1,396,963 in the three months ended June 30, 2015. The increase in revenue and gross profit, along with the aforementioned reduction in selling and administrative expenses, helped generate an improvement of $518,547 over the three-month period ended June 30, 2015. Furthermore, the Company benefited from the aforementioned sale of its US rights to the drug Naproxen Suspension, which had a positive impact of $2,570,200 in the three months ended June 30, 2016, bringing the total operating profit improvement to $3,088,747 when compared to the three-month period ended June 30, 2015.

NET PROFIT OR LOSS

The net profit for the three months ended June 30, 2016 was $1,442,796 compared to a net loss of $1,594,646 in the three months ended June 30, 2015. In the three months ended June 30, 2016, the difference between operating loss and net loss is mainly due to $261,352 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.

June 30, 2016
(3 months)
June 30, 2015
(3 months)
Revenue from Products $811,246 $542,168
Revenue from Commissions 81,915 63,474
TOTAL Revenue 893,161 605,642
Cost of sales 289,612 211,916
Gross Profit 603,549 393,726
Selling and administrative expenses 1,487,524 1,763,095
Other Income 2,570,200 -
Operating profit (loss) 1,691,784 (1,396,963 )
Net profit (loss) 1,442,796 (1,594,646 )
Cash flow from (used in) operating activities 1,558,550 (1,339,369 )
Cash flow from (used in) investing activities - (3,840 )
Cash flow from (used in) financing activities (374 ) 70,965

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; and a broad pipeline of products under registration.

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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