Pediapharm Announces Q1 Record Revenue of $2.5M (2.8x Last Year)

MONTREAL, QUEBEC--(Marketwired - Aug. 24, 2017) -

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Pediapharm Inc. (the "Company" or "Pediapharm") (TSX VENTURE:PDP) is pleased to file its first quarter financial results ended June 30, 2017. All dollar amounts are expressed in Canadian currency and results are reported in accordance with IFRS accounting principles.

KEY HIGHLIGHTS - PERIOD ENDED JUNE 30, 2017

In the three-month period ended June 30, 2017, the Company achieved record quarterly revenue of $2,465,550 (three-month period ended June 30, 2016 - $893,161), representing an increase of 176% including:

• 24% increase from NYDA®
• 12% increase from Naproxen Suspension
• Revenue from Relaxa™ which was in line with Management's estimate of approximately $3 million on an annual basis
• Revenue from Rupall™, launched in late January 2017, which has significantly exceeded Management's original estimate by more than 40%. Management now estimates the peak sales of Rupall™ will reach $10-12 million in 5 to 7 years.
• Revenue from Otixal, launched in May 2017, which were in line with Management's estimate.

Adjusted EBITDA¹⁾ for the three-month period ended June 30, 2017 was ($697,096) compared to ($761,465) for the three-month period ended June 30, 2016. The improvement is mainly due to the increase gross profit driven by a 176% increase in revenue. This was somewhat offset by the additional $600,455 in selling and marketing expenses related to the initial launches of Rupall and Otixal.

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

Net working capital of over $7.3M.

The Cuvposa dossier is progressing as expected and so, the Company still expects a decision from Health Canada before the end of October 2017.

"The excellent revenue growth was driven by the successful launch of Rupall as well as the continued growth momentum of our established brands such as NYDA, Relaxa and Naproxen Suspension" stated Sylvain Chretien, President and Chief Executive Officer of Pediapharm. "Given our growth momentum with the recently launched products and the fact that most initial launch expenses occurred in Q1, we are seriously approaching positive EBITDA on an annual basis".

FUTURE OUTLOOK

The Company has recently launched two new products: Rupall™ and Otixal™. 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 $10-12 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.

At the same time, the Company continues to execute its commercial plan with existing products, such as NYDA®, a revolutionary treatment indicated for eradication of head lice and its eggs, and Relaxa™, an osmotic laxative used to treat constipation. 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). Relaxa™ is on pace to reach approximately $3 million of revenue on an annual basis.

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 Rupall™ and Otixal™.

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 quarters and years to come. Management therefore estimates that the Company will be in a positive operating cash flow situation for the year ended March 31, 2019.

Pediapharm has a product pipeline of secured exclusive agreements which Management believes will enable the Company to reach annual revenue of $30,000,000 to $35,000,000 within the next 5-6 years along with projected EBITDA of approximately 30% to revenue. The 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
Rupall™	Symptoms of Allergy - Urticaria		10M-12M (revised from 8M-10M)		January 2017
Otixal™	Ear Infection		4M		May 2017
Cuvposa™ (1)	Severe Drooling - Cerebral Palsy		5M		UNDER HC REVIEW - Est. Launch: Dec 2017 (4)
TOTAL			30-35M

(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 June 30, 2017

REVENUE

For the three months ended June 30, 2017, total revenue reached $2,465,550 compared with revenue of $893,161 in the three months ended June 30, 2016, representing a 176% increase. Revenue from NYDA® increased by 24%, while revenue from Pediapharm naproxen suspension increased by 12%. This was the first full quarter of Rupall which was launched in late January 2017. Management is very pleased with the results, which exceeded its initial expectations. This quarter also included revenue generated from Relaxa™ as a result of the September 19, 2016 transaction, which was in line Management's estimate.

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 June 30, 2017, gross profit reached $1,287,049, representing an increase of 113% (three months ended June 30, 2016 - $603,549). Gross margin as a percentage of revenue was 52% (three months ended June 30, 2016 - 64%). The main reason for the lower gross margin percentage is related to Relaxa™, which has lower gross margins due to the nature of its product category. 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 June 30, 2017, selling and administrative expenses reached $2,134,515 (three months ended June 30, 2016 - $1,487,524). The main reason for the significant increase is related to the initial and strategic investments in supporting the January 2017 commercial launch of Rupall™ and the May 2017 commercial launch of Otixal™. Management believes these investments in Rupall™ and Otixal™ are key to the overall success of the Company. In upcoming quarters, increases in selling and administrative expenses are expected to be minimal when compared to last year, unless Management sees specific opportunities where additional selling and marketing expenses would generate significant incremental revenue.

OTHER INCOME

In the three months ended June 30, 2017, there was nothing to report as other income. In the three months ended June 30, 2016 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 June 30, 2017 was $837,761 compared to an operating profit of $1,691,784 in the three months ended June 30, 2016. In the three months ended June 30, 2016, 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.

NET PROFIT OR LOSS

The net loss for the three months ended June 30, 2017 was $1,117,928 compared to a net profit of $1,442,796 in the three months ended June 30, 2016. In both periods, the difference between operating loss and net loss is mainly due to approximately $260,000-$285,000 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.

ADJUSTED EBITDA¹⁾

Adjusted EBITDA, for the three-month period ended June 30, 2017 was ($697,096) compared to ($761,465) for the three-month period ended June 30, 2016. The improvement is mainly due to the increase gross profit driven by a 176% increase in revenue. This was somewhat offset by the additional $600,455 in selling and marketing expenses related to the initial launches of Rupall and Otixal.

		June 30, 2017 (3 months)				June 30, 2016 (3 months)
Revenue from Products		$	2,462,845			$	811,246
Revenue from Commissions			2,705				81,915
TOTAL Revenue			2,465,550				893,161
Gross Profit			1,287,049				603,549
Selling and administrative expenses			2,134,515				1,487,524
Other Income			-				2,570,200
Operating profit (loss)			(837,761	)			1,691,784
Net profit (loss)			(1,117,928	)			1,442,796
Cash flow from (used in) operating activities			(2,074,693	)			1,558,550
Cash flow from (used in) investing activities			(298,268	)			-
Cash flow from (used in) financing activities			4,983,242				(374	)

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, 2017 was ($697,096) compared to ($761,465) for the three-month period ended June 30, 2016. The improvement is mainly due to the increase in gross profit driven by a 176% increase in revenue. This was somewhat offset by the additional selling and marketing expenses related to the initial launch of Rupall and Otixal.

	For the 3-month period ended June 30, 2017 $		For the 3-month period ended June 30, 2016 $
Net Income (Loss) and Comprehensive Income (Loss)	(1,117,928	)	1,442,796
Add Back:
Depreciation & Amort. (property, equipment, intangible assets)	44,912		30,351
Amortization of financing fees	41,352		32,447
Interest expenses	166,833		166,836
Other non-cash finance costs	77,720		62,068
Interest income	(5,738	)	(12,364	)
EBITDA	(792,849	)	1,722,134
Income from sale of assets	-		(2,570,200	)
Share-based compensation	95,753		86,601
ADJUSTED EBITDA	(697,096	)	(761,465	)

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.