PDP Pediapharm

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Pediapharm Inc. (the “Company” or "Pediapharm") (TSX VENTURE: PDP) (OTCQB: PDDPF) is pleased to file its first quarter financial results ended June 30, 2018. All dollar amounts are expressed in Canadian currency and results are reported in accordance with IFRS accounting principles.

KEY HIGHLIGHTS - PERIOD ENDED JUNE 30, 2018

In the three-month period ended June 30, 2018, the Company achieved record quarterly revenue of $3,249,139 (three-month period ended June 30, 2017 - $2,465,550), representing an increase of 32%. Highlights for this quarter include:

• Revenue from recently launched brands, Rupall™, Otixal™ and Cuvposa™, respectively launched in January 2017, May 2017 and April 2018, of $1,675,502 (+149%) which exceeded Management’s estimate and helped offset what Management believes is a temporary decrease in revenue from Established brands
• Revenue from Established brands (NYDA®, Relaxa™, Naproxen Suspension) decreased by 9%. This is partly due to the reduction in the overall units of headlice treatments in Canada (according to latest IMS report) as well as the recently implemented regulation from the province of Quebec that reduced Relaxa’s net revenue
• Gross Profit dollars increased by 35% and Gross Margin as a percentage of revenue was 54% (three-month period ended June 30, 2017 – 52%)
• Adjusted EBITDA of ($293,517) vs ($697,096)
• Major improvement in cash flow used in operating activities at ($333,526) vs ($2,074,693)

The Company continued its investments in the recently launched brands, especially with Rupall. The Company also commercially launched Cuvposa™ in April 2018 using its current infrastructure.

As previously stated and as shown in the fourth quarter, Management expects fluctuations in selling and administrative expenses to be minimal when compared to previous years unless it sees specific opportunities where additional investment would generate significant incremental revenue. The Company’s plan remains to bring the Company into a positive Adjusted EBITDA situation in the current fiscal year.

The Company has net working capital of approximately $4.3 million as of June 30, 2018 ($4.7 million as of June 30, 2017).

“This is our 12th consecutive year-over-year quarterly growth and a record quarter in terms of revenue” stated Sylvain Chretien, President and Chief Executive Officer of Pediapharm. “The 32% growth was mainly driven by Rupall and our other recently launched products. Cuvposa, for instance, is being very well received by the medical community and has started to generate meaningful revenue. Important to note that, similarly to last year, a large part of our marketing investment budget occurred in this quarter in order to take advantage of the allergy season. We are therefore still very confident about our ability to become adjusted EBITDA positive in this current fiscal year. Finally, while our commercial execution is performing at the expected level, we remain very active in assessing various product opportunities and potential transactions.” 

FUTURE OUTLOOK

The Company has recently launched three new products: Rupall™, Otixal™ and Cuvposa™. Rupall™ was launched in late January 2017 and Management is closely monitoring Key Performance Indicators (“KPIs”), such as number of physicians prescribing Rupall™. These early but very promising 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 $10-12 million. Otixal™ was launched in mid-May 2017 and the Company estimates an annual peak sale potential of $4 million.

In April 2018, the Company commercially launched, using its current infrastructure, Cuvposa™ (Glycopyrrolate oral solution 1 mg/ 5 mL) which is indicated to reduce chronic severe drooling in patients aged 3-18 years with neurologic conditions associated with problem drooling (e.g. cerebral palsy (CP)). The receptivity of Cuvposa from the medical community and the patients is very positive as the product brings key clinical attributes vs the compounding form and other invasive medical interventions. The Company believes there is an opportunity to gain additional market access through public reimbursements and is currently evaluating that strategy.

With its existing solid infrastructure in place, Management estimates that fluctuations in annual selling and administrative expenses will be minimal even with its projected substantial revenue growth in quarters and years to come. Management therefore estimates that the Company will be in a positive adjusted EBITDA situation in the current fiscal year.

Pediapharm has a portfolio of products, which Management believes will enable the Company to reach annual peak revenue of $30,000,000 to $35,000,000 along with projected EBITDA of approximately 30% to revenue. The projected peak revenue forecast is based on using IMS data and Management’s estimate in the market share to be captured for each of the product.

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. In parallel, Pediapharm still assesses additional exclusive licensing agreements (commonly known as “in-licensing”). The key objective is to generate profitability in a timely fashion.

In summary, the Company has a solid cash position to execute its business plan, including the recent launches of Rupall™ in January 2017, Otixal™ in May 2017 and Cuvposa™ in April 2018. Management estimates that the upcoming expected revenue growth and stable operational expenses will bring the Company into a positive adjusted EBITDA situation in the current fiscal year. 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, 2018

REVENUEFor the three months ended June 30, 2018, total revenue reached $3,249,139 compared with revenue of $2,465,550 in the three months ended June 30, 2017, representing a 32% increase. Revenue from recently launched brands, Rupall™, Otixal™ and Cuvposa™, respectively launched in January 2017, May 2017 and April 2018, of $1,675,502 (+149%) which exceeded Management’s estimate and helped offset what Management believes is a temporary decrease in revenue from Established brands. Revenue from Established brands (NYDA®, Relaxa™, Naproxen Suspension) decreased by 9%. This is partly due to the reduction in the overall units of headlice treatments in Canada (according to latest IMS report) as well as the recently implemented regulation from the province of Quebec that reduced Relaxa’s net revenue.

GROSS PROFIT AND MARGINWhen 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 June 30, 2018, gross profit reached $1,738,000, representing an increase of 35% (three months ended June 30, 2017 ‑ $1,287,049). Gross margin as a percentage of revenue was 54% (three months ended June 30, 2017 – 52%). The accelerated growth of newly launched products, which have higher gross margins, had a positive impact on gross margin as a percentage of revenue. As previously mentioned, Relaxa™ has lower gross margins due to the nature of its product category and has a negative impact on total gross margin percentages. Over time, with the estimated revenue growth from high gross margins products such as NYDA®, Rupall™, Otixal™ and Cuvposa, Management estimates that total gross margins as a percentage of revenue will continue to improve and ultimately reach 60-65%.

SELLING AND ADMINISTRATIVE EXPENSESFor the three months ended June 30, 2018, selling and administrative expenses reached $2,149,219 (three months ended June 30, 2017 ‑ $2,134,515). This reflects the Company’s commitment to keep investing in new product launches while having a minimal impact on operating expenses. Management believes these investments in Rupall™, Otixal™ and Cuvposa™ are key to the overall success of the Company.

ADJUSTED EBITDA(1)Adjusted EBITDA, defined below, for the three-month period ended June 30, 2018 was ($293,517) compared to ($697,096) for the three-month period ended June 30, 2017. The improvement is mainly due to the increase gross profit driven by a 32% increase in revenue.

	June 30, 2018 (3 months) $		June 30, 2017 (3 months) $
Revenue from Products	3,249,139		2,462,845
Revenue from Commissions	-		2,705
TOTAL Revenue	3,249,139		2,465,550
Gross Profit	1,738,000		1,287,049
Selling and administrative expenses	2,149,219		2,134,515
Operating loss	(422,146	)	(837,761	)
Net loss	(692,090	)	(1,117,928	)
Cash flow used in operating activities	(333,526	)	(2,074,693	)
Cash flow used in investing activities	(7,380	)	(298,268	)
Cash flow from financing activities	-		4,983,242

1) EBITDA and Adjusted EBITDA are non-IFRS financial measures. The term EBITDA (earnings before interest, taxes, depreciation and amortization,) does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement IFRS measures by providing a further understanding of operations from management’s perspective. The Company defines Adjusted EBITDA as earnings before financing costs, interest expenses, income taxes, interest income, depreciation of property and equipment, amortization of intangible assets, non-cash share-based compensation, income from sale of asset and impairment of intangible assets. The Company considers Adjusted EBITDA as a key metric in assessing business performance and considers Adjusted EBITDA to be an important measure of operating performance and cash flow, providing useful information to investors and analysts. Adjusted EBITDA for the three-month period ended June 30, 2018 was ($293,517) compared to ($697,096) for the three-month period ended June 30, 2017. The improvement is mainly due to the increase in gross profit driven by a 32% increase in revenue. This was somewhat offset by the additional selling and marketing expenses related to the launch of Cuvposa and the continued investments in Rupall and Otixal.

		For the3-month period endedJune 30,2018 $		For the3-month period endedJune 30,2017 $
Net Loss and Comprehensive Loss		(692,090	)	(1,117,928	)
Add Back:
Depreciation & Amortization (property, equipment, intangible assets)		78,051		44,912
Interest expenses		166,833		166,833
Convertible debenture interest accretion net of deferred financing fee amortization		112,313		119,072
Interest income		(9.202	)	(5,738	)
EBITDA		(344,095	)	(792,849	)
Share-based compensation		50,578		95,753
ADJUSTED EBITDA		(293,517	)	(697,096	)

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; Relaxa™, an osmotic laxative used to treat constipation; 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 chronic severe drooling, a condition affecting a significant proportion of cerebral palsy patients.

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.

 

CONTACT INFORMATION:

Sylvain Chretien, President and Chief Executive Officer
Pediapharm Inc.
Tel.: 514-762-2626 ext. 201
E-mail: sylvain.chretien@pedia-pharm.com

Roland Boivin, Chief Financial Officer
Pediapharm Inc.
Tel.: 514-762-2626 ext. 202
E-mail: roland.boivin@pedia-pharm.com

Frank Candido
Direct Financial Strategies and Communication Inc.
Tel.: 514-969-5530
E-mail: directmtl@gmail.com