Pediapharm Inc.
TSX VENTURE : PDP

Pediapharm Inc.

February 25, 2016 18:00 ET

Pediapharm Announces Third Quarter Financial Results: Revenues Increased by 21% vs Same Period Last Year

MONTREAL, QUEBEC--(Marketwired - Feb. 25, 2016) -

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Pediapharm Inc. ("Pediapharm" or the "Company") (TSX VENTURE:PDP) is pleased to announce the filing of its third quarter unaudited financial results ended December 31, 2015. All dollar amounts are expressed in Canadian currency unless otherwise indicated and results are reported in accordance with IFRS accounting principles.

Highlights for the three-month period ended December 31, 2015:

The Company's total revenue increased by 21% vs the same three-month period in 2014, including an increase of 25% from sales of Pediapharm branded products (vs revenue from commissions). In the nine months ended December 31, 2015, the Company's total revenue increased by 16% vs the same nine-month period in 2014, including an increase of 45% from sales of Pediapharm branded products (vs revenue from commissions)

NYDA's sales performance continued to be very solid. For the three-month period ended December 31, 2015, NYDA's revenue reached over $875,000, which represents a 34% increase compared to the three-month period ended December 31, 2014. In the nine months ended December 31, 2015, NYDA's revenue increased by 56% vs the same nine-month period in 2014. In the province of Quebec, NYDA is #1 in both unit and dollar market share (IMS data-December 2015) and is ranked # 2 in the rest of Canada (IMS Data-December 2015), where most of the upcoming commercial efforts will be invested. This performance confirms once again the excellent growth momentum obtained by NYDA since it was launched in Canada. Management estimates that NYDA has the potential to reach $3.2 million in its current fiscal year.

On November 16, 2015, the Company has submitted to the Canadian Health Authorities its regulatory dossier of Otixal®; a novel patented formulation of Ciprofloxacin 0.3% otic solution and Fluocinolone Acetonide 0.025% otic solution for the treatment of both acute otitis media in patients with tympanostomy tubes ("AOMT") and acute otitis external (swimmer's ear).

On December 31, 2015, the Company announced that Health Canada has upheld the May 2015 Notice of Deficiency - Withdrawal Letter regarding Easyhaler Budesonide, without prejudice to re-filing. Health Canada's decision is based on recommendations contained in a report issued by a reconsideration panel and Health Canada's Office of Science. The reconsideration panel was responsible to hear arguments from Pediapharm and Health Canada's Allergy and Respiratory Drugs Division and to submit recommendations to the Director General, who accepted them in a letter sent to Company. The Company will take the appropriate time to analyze the available documents and notes with its team of consultants and partner that have been involved during this process, in order to assess its potential alternatives.

Recent highlights

On February 2, 2016, the Company successfully completed a formal asset purchase agreement with an industry third party for the sale of its United States rights to Naproxen Suspension in a transaction valued at approximately US$4.25 million (the "Transaction"). Financial terms of the Transaction include: payment of US$2.25 million in cash which was received at closing and payment of US$2.0 million in cash conditional on Pediapharm being granted approval from the Food and Drug Administration ("FDA") of the manufacturing site transfer on or before September 30, 2016. This approval process is currently underway and is following its normal course. It was never Pediapharm's intention to commercialize Naproxen Suspension in the United States using its own infrastructure. This asset had yet to generate revenue for the Company.

The US$2.25 million received on February 1, 2016 is in addition to the $3.35 million of cash and cash equivalents the Company had at December 31, 2015.

"The CDN$3.1 million (US$2.25 million) we recently received as the first payment of the aforementioned transaction puts us in a very solid position to accelerate our growth given the upcoming potential product launches of Rupafin™ and Otixal®, assuming Health Canada's approvals." stated Sylvain Chretien, President and Chief Executive Officer of Pediapharm. He added: "At the same time, the continued sales momentum of our leading product, NYDA®, and the important reduction of non-recurrent expenses from our business operations are positive steps toward generating positing cash flow" Mr. Chretien concluded with the following: "In short-term, we continue to seriously look into accretive transactions that have a strategic fit with our existing business model."

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 as stated before (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 Company intends on filing Cuvposa™ over the next few months for estimated Health Canada approval before March 31st 2017.

The chart below contains information on the secured exclusive agreements that are expected to be launched in the next 14 months. This chart has been updated since the last MD&A dated November 30, 2015 to reflect some of the most recent activity.

Pediapharm product Pipeline

PRODUCT PARTNER-COUNTRY INDICATION MARKET SIZE
(CDN $)
EST. ANNUAL PEAK
SALES (CDN $) (2)
(7)
EST. LAUNCH
(Calendar
Year)
(8)
Rupatadine (Rupafin) (1) Uriach-Spain Antihistamine (RX
indication)
120M (6) 6M Q-4 2016
Cetraxal-Plus (Otixal) (1) Salvat Laboratories-Spain Ear Infection,
Swimmer's Ear
25M (5) 4M Q-4 2016
Cuvposa (1) Merz Pharma-USA Severe Drooling -Cerebral Palsy 25M (4) 5M Q-1 2017
TOTAL 170M+ 15M
(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) IMS Data - June 2012
(4) Based on prevalence of Cerebral Palsy patients from the Public Health Agency of Canada
(5) IMS Data - December 2014
(6) IMS Data - December 2013
(7) Based on Market Data (see above footnotes) and Management's estimates
(8) 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 potential launches of Rupafin™ and Otixal® in the second-half of 2016, assuming Health Canada's approvals. 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 December 31, 2015

For the three months ended December 31, 2015, revenue reached $1,022,539 compared with revenue of $848,511 in the three months ended December 31, 2014, which represents a 21% increase. Revenue from sales of Pediapharm branded products increased by $186,252 due to the strong revenue growth from NYDA®, while revenue from commissions decreased by $12,224.

For the three months ended December 31, 2015, selling and administrative expenses were $1,534,995 (2014 - $1,702,252). Selling and marketing expenses have decreased by $162,420 mostly due to the Company's on-going initiative to maximize effectiveness of its sales and marketing investments. General administration expenses have decreased by $49,722 while business development and regulatory affairs expenses have increased by $44,885. The main reasons for this increase are the additional efforts associated with the 5 agreements signed in fiscal 2015.

The operating loss for the three months ended December 31, 2015 was $1,094,932 compared to $1,125,460 in the three months ended December 31, 2014. While the 21% increase in revenue had a positive impact, the Company has recorded an impairment expense of $216,975 for the Easyhaler Budesonide capitalized license costs (included within intangible assets), as a result of Health Canada's decision to uphold the May 2015 Notice of Deficiency - Withdrawal Letter. Even if Health Canada's decision is without prejudice to re-filing, the Company has decided to impair the related intangible asset at this time.

The loss and comprehensive loss for the three months ended December 31, 2015 was $1,288,020 compared to $1,121,145 in the three months ended December 31, 2014. The three months ended December 31, 2015 was negatively impacted by $211,903 in finance costs as a result of 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. Furthermore, the aforementioned impairment expense regarding Easyhaler Budesonide had an important negative impact on operating loss.

December 31,
2015
(3 months)
December 31,
2014
(3 months)
December 31,
2015
(9 months)
December 31,
2014
(9 months)
Revenue from Products 935,498 749,246 2,933,126 2,017,763
Revenue from Commissions 87,041 99,265 166,790 644,265
TOTAL Revenue 1,022,539 848,511 3,099,916 2,662,028
Gross Profit 689,358 594,347 2,037,565 1,931,759
Selling and administrative expenses 1,534,995 1,702,252 4,987,036 5,035,007
Operating loss (1,094,932 ) (1,125,460 ) (3,249,936 ) (3,150,099 )
Net loss (1,288,020 ) (1,121,145 ) (3,836,677 ) (3,120,689 )
Cash flow from (used in) operating activities (547,889 ) (968,327 ) (3,018,240 ) (3,360,853 )
Cash flow from (used in) investing activities (246,372 ) (701,787 ) (534,340 ) (992,690 )
Cash flow from (used in) financing activities 19,368 (985 ) 89,270 (985 )

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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