Pediapharm Inc.
TSX VENTURE : PDP

Pediapharm Inc.

February 28, 2017 08:00 ET

Pediapharm Announces Third Quarter Financial Results - 73% Increase in Revenue

MONTREAL, QUEBEC--(Marketwired - Feb. 28, 2017) -

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 third quarter financial results ended December 31, 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 DECEMBER 31, 2016

In the three-month period ended December 31, 2016, total revenue reached $1,773,044 (three-month period ended December 31, 2015 - $1,022,539), representing an increase of 73% including:

  • 12% increase from NYDA®, and based on the most recent IMS data (MAT - December 2016), it is growing by 35%. Management is still confident with its projection of $4.2 - $4.4 million for the current fiscal year
  • 92% increase from Naproxen Suspension
  • Revenue from Relaxa® on pace to reach $3 million on an annual basis

In the nine-month period ended December 31, 2016, total revenue reached $4,548,351 (nine months ended December 31, 2015 - $3,099,916), representing an increase of 47%. In the case of Relaxa®, only revenue generated after the September 19, 2016 transaction are included.

  • 25% increase from NYDA®
  • 86% increase from Naproxen Suspension
  • Revenue from Relaxa® on pace to reach $3 million on an annual basis

The recent addition of Relaxa® brings the Company into a positive operating cash flow situation based on a rolling 12-month timeframe. This does not include the investments (pre-launch and post-launch) on the upcoming product launches (Rupall™ in January 2017 and Otixal™ in April 2017).

On December 12, 2016, the Company announced Health Canada's approval of Otixal™ (ciprofloxacin 0.3 % and fluocinolone acetonide 0.025 %) otic solution for the treatment of acute otitis media with tympanostomy tubes ("AOMT") in pediatric patients (aged 6 months and older). Otixal™ is the first and only antibiotic and steroid combination ear drop available in single, sterile, preservative-free and unit-dose packaging. Many pre-commercial launch activities have already taken place in advance of the commercial launch in April 2017, when the product is expected to be available to the Canadian market.

While there are differences in the net working capital components, such as a significant increase in inventory due to the recent addition of Relaxa®, the Company has net working capital of over $5,000,000 as of December 31, 2016, which is slightly higher than the net working capital as of March 31, 2016.

RECENT HIGHLIGHTS

On January 25, 2017, the Company announced the commercial launch of Rupall™ (rupatadine) in Canada. This innovative allergy medication is now available to patients suffering from allergy and urticaria through physician prescriptions. Rupall™ is currently being distributed within the various wholesalers and pharmacy channels. The Company's national sales force has been trained and is communicating with health care providers on this new and unique allergy medication. Rupall™ (rupatadine) comes in two dosage forms; the tablet 10mg and Oral Solution 1mg/mL, and is indicated 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. Rupall™ (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 granted by Health Canada's Office of Patented Medicines and Liaison under section C.08.004.1 of the Food and Drug Regulations.

In February 2017, the Company introduced two new stock keeping units ("skus") of Relaxa®. Management believes that this addition to the existing line of Relaxa® products will help increase revenue and improve gross margins beginning in the latter part of FY2018.

In January 2017, Mackie Research Capital Corporation initiated coverage of Pediapharm.

"We are very excited about the 73% revenue growth vs the same quarter last year", stated Sylvain Chretien, President and Chief Executive Officer of Pediapharm. He added: "We have successfully integrated Relaxa® in Pediapharm's structure and are on track to reach $3 million annually in revenue from Relaxa®. Furthermore, we have recently launched Rupall™, a new allergy medication, and early signs are very promising. We will also be launching Otixal™ in April. Pediapharm is definitely entering a new exciting phase with tremendous revenue growth in quarters and years to come."

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 $4,200,000 - $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).

With NYDA®, Naproxen Suspension and Relaxa® alone, the Company is confident to generate over $8.5 million of revenue in FY2018 (year ended March 31, 2018). This does not include revenue from new products launches. Management's objective in the next few quarters is to optimize the Rupall™ and Otixal™ launch investments while keeping a solid balance sheet. The on-going positive feedback from key opinion leaders in allergy confirms Management's estimate that Rupall™ has an annual peak sale potential of $8-10 million within 5-6 years. Regarding Otixal™, 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 April 2017
Cuvposa™ (1) Severe Drooling - Cerebral Palsy 5M 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 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 for Cuvposa™, which was submitted to Health Canada in August 2016. 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 launch of Rupall™ and the upcoming launch of Otixal™ in April 2017. Furthermore, Pediapharm expects continuous strong revenue growth from Pediapharm's other branded products such as NYDA®, Naproxen Suspension and Relaxa®. 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 DECEMBER 31, 2016

REVENUE

For the three months ended December 31, 2016, total revenue reached $1,773,044 compared with revenue of $1,022,539 in the three months ended December 31, 2015, representing a 73% increase. This was the first full quarter or revenue from Relaxa® following the September 19, 2016 transaction. Revenue from Relaxa® is on pace to reach $3 million on an annual basis. Revenue from NYDA® increased by 12% and based on the most recent IMS data (MAT - December 2016), it is growing by 35%, Management is still confident with its projection of $4.2-$4.4 million for the year ending March 31, 2017. Revenue from Pediapharm naproxen suspension increased by 92%.

For the nine months ended December 31, 2016, total revenue reached $4,548,351 compared with revenue of $3,099,916 in the nine months ended December 31, 2015, representing a 47% increase. Revenue from Relaxa® is on pace to reach $3 million on an annual basis. Revenue from NYDA® increased by 25% and based on the most recent IMS data (MAT - December 2016), it is growing by 35%. Management is still confident with its projection of $4.2-$4.4 million for the year ending March 31, 2017. Revenue from Pediapharm naproxen suspension increased by 86%.

GROSS MARGIN

When comparing periods, in addition to focusing on gross margin 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.

For the three months ended December 31, 2016, gross margin dollars reached $891,893, representing an increase of 29% (three months ended December 31, 2015 - $689,358). Gross margin as a percentage of revenue was 48% (three months ended December 31, 2015 - 64%). In addition to the fact Relaxa® has lower gross margins due to nature of its product category, there were also transition expenses due to the transition of Relaxa® to Pediapharm. These expenses include stability testing, new inventory components, warehousing set-up fees, etc. In upcoming quarters, 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 December 31, 2016, selling and administrative expenses reached $1,656,245 (three months ended December 31, 2015 - $1,534,995). 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 and preparing the upcoming commercial launches of Rupall™ and Otixal™. These pre-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 a successful launch.

For the nine months ended December 31, 2016, selling and administrative expenses decreased by $55,182 to reach $4,931,854, (nine months ended December 31, 2015 - $4,987,036).

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.

OTHER INCOME

In the three months ended December 31, 2016, there was nothing to report as other income. In the nine months ended December 31, 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 loss for the three months ended December 31, 2016 was $783,507 compared to an operating loss of $1,084,646 in the three months ended December 31, 2015. The increase in revenue is the main reason for that improvement of $301,139 over the three-month period ended December 31, 2015.

The operating profit for the nine months ended December 31, 2016 was $328,161 compared to an operating loss of $3,234,294 in the nine months ended December 31, 2015. The increase in revenue and gross profit, helped generate an improvement of $992,255 over the nine-month period ended December 31, 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 nine months ended December 31, 2016, bringing the total operating profit improvement to $3,562,455 when compared to the nine-month period ended December 31, 2015.

NET PROFIT OR LOSS

The net loss for the three months ended December 31, 2016 was $1,047,750 compared to a net loss of $1,288,020 in the three months ended December 31, 2015. In the three months ended December 31, 2016, the difference between operating loss and net loss is mainly due to $272,919 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.

The net loss for the nine months ended December 31, 2016 was $443,274 compared to a net loss of $3,836,677 in the nine months ended December 31, 2015. In the nine months ended December 31, 2016, the difference between operating loss and net loss is mainly due to $804,905 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.

December 31, 2016
(3 months)
December 31, 2015
(3 months)
December 31, 2016 (9 months) December 31, 2015 (9 months)
Revenue from Products $ 1,694,294 $ 935,498 $ 4,308,936 $ 2,993,126
Revenue from Commissions 78,750 87,041 239,415 166,790
TOTAL Revenue 1,773,044 1,022,539 4,548,351 3,099,916
Cost of sales 881,151 333,181 1,831,990 1,062,351
Gross Profit 891,893 689,358 2,716,361 2,037,565
Selling and administrative expenses 1,656,245 1,534,995 4,931,854 4,987,036
Other Income - - 2,570,200 -
Operating profit (loss) (783,507 ) (1,084,646 ) 328,161 (3,234,294 )
Net profit (loss) (1,047,750 ) (1,288,020 ) (443,274 ) (3,836,677 )
Cash flow from (used in) operating activities
(765,653
) (537,603 )
(510,882
)
(3,002,598
)
Cash flow from (used in) investing activities
(229,271
) (246,372 )
(314,840
)
(534,340
)
Cash flow from (used in) financing activities - 19,368 (378 ) 89,270

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. 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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