LAVAL, Quebec--(BUSINESS WIRE)-- Crescita Therapeutics Inc. (TSX: CTX and OTC US: CRRTF) (“Crescita” or the “Company”), a growth-oriented, innovation-driven Canadian commercial dermatology company, today reported its financial results for the second quarter ended June 30, 2022 (“Q2-F2022”). All amounts presented are in thousands of Canadian dollars (“CAD”) unless otherwise noted.

Financial Highlights

Q2-F2022 vs. Q2-F2021

• Revenue was $6,512 compared to $2,949, up $3,563;
• Gross profit was $3,647 compared to $1,722, up $1,925;
• Operating expenses were $3,447 compared to $2,399, up $1,048;
• Adjusted EBITDA¹ was $646 compared to $(269), up $915;
• Ending cash was $10,502, down $1,240 for the quarter.

“This was a very good quarter,” said Serge Verreault, President and CEO of Crescita. “We set a manufacturing revenue record of $3.9 million, delivering on previously announced purchase orders, and our commercial skincare business grew $0.5 million or 28% versus Q2-21. We also generated operating cash flow by posting significant positive adjusted EBITDA in a quarter where we didn’t receive any milestones or upfront payments from licensing transactions. We expanded our medical product portfolio with the Health Canada approval of the ART FILLER^® injectables, which we plan to launch in the fall. Even after retiring $1.0 million of convertible debentures, we maintain a healthy cash balance and an unutilized credit facility that are available to support organic growth and potential strategic transactions. Moving forward, we are focused on and committed to strategic growth supported by fundamental execution.”

Q2-F2022 Corporate Developments

Approval of ART FILLER^® Injectables

• Health Canada approved the following hyaluronic acid (“HA”) injectables (the “Fillers”) for treating lines and wrinkles, replacing skin volume, and plumping and defining face contours: Art Filler Universal, Art Filler Fine Lines, and Art Filler Contour. We expect to launch the Fillers in the Canadian medical aesthetic market with a dedicated sales force in the fourth quarter of 2022.

Launch of Obagi Medical^® Product Line in Canada

• We launched the Obagi Medical skincare product line in Canada using our existing sales force. Obagi Cosmeceuticals LLC (“Obagi”) is a skincare company that designs products promoting skin health, including the Obagi Medical line which comprises skincare products intended to restore the skin’s natural radiance by improving skin tone and texture and diminishing the appearance of premature aging. This new line expands our medical skincare portfolio and complements Pro-Derm^® which is intended to optimize medical aesthetic procedures offered by doctors, dermatologists, and plastic surgeons.

Repayment of Convertible Debentures

• We significantly reduced our third-party borrowings by repaying in full the $1.0M convertible debenture financing with Bloom Burton Healthcare Lending Trust and Bloom Burton Healthcare Lending Trust II (the “Debentures”). The Debentures bore interest at 9% and had a maturity date of June 30, 2022.

Q2-F2022 Financial Results

Note: The Management’s Discussion and Analysis (“MD&A”), Condensed Consolidated Interim Financial Statements and accompanying notes for the three and six months ended June 30, 2022 are available at www.crescitatherapeutics.com/financial-reporting and have been filed with SEDAR at www.sedar.com.

Summary Financial Results

Revenue
We have three reportable segments: 1) Commercial Skincare (“Commercial”), which manufactures and sells branded non-prescription skincare products in the Canadian and international markets, and also commercializes Pliaglis, NCTF^® Boost 135 HA, and the Obagi Medical product line in Canada; 2) Licensing and Royalties (“Licensing”), which primarily generates revenue from licensing our intellectual property related to Pliaglis or our transdermal delivery technologies; and 3) Manufacturing and Services (“Manufacturing”), which generates revenue from contract manufacturing and product development services.

For the three months ended June 30, 2022, total revenue was $6,512 compared to $2,949 for the three months ended June 30, 2021, representing an increase of $3,563. The largest increase came from our Manufacturing segment in the amount of $3,288, which mainly reflected the partial fulfillment of the approximately $7,000 in purchase orders previously announced, as well as higher volumes from new and existing clients. Commercial Skincare sales grew by $523 mainly due to higher product sales across our main brands in all channels as a result of more promotions and product ramp-ups, and incremental sales from the Obagi launch, partly offset by lower Alyria^® sales and sales of personal protective equipment versus the prior year.

Licensing segment revenue decreased by $248 year-over-year. Q2-F2022 Licensing revenue mainly reflected royalties above the minimum guaranteed royalties under our agreement with Cantabria Labs Inc. (the “Cantabria Agreement”) for Pliaglis, while Q2-F2021 Licensing revenue consisted of: 1) an upfront payment from Croma Pharma GmbH as part of a 9-country Pliaglis licensing agreement; 2) products sales for supplying Pliaglis under our Austria licensing agreement with Pelpharma Handels GmbH; and 3) incremental royalties beyond the minimum guaranteed royalties under the Cantabria Agreement.

Gross Profit
For the three months ended June 30, 2022, gross profit was $3,647, representing a gross margin of 56.0%, compared to $1,722 and a margin of 58.4% for the three months ended June 30, 2021. The increase in gross profit of $1,925 was mainly due to the growth in our Manufacturing segment revenue year-over-year, while the decrease in gross margin of 2.4% was driven, in part, by the impact of product promotions in the Commercial segment, partly offset by the benefit of higher manufacturing volumes. Gross profit and gross margin were also impacted by the end of wage and rent subsidies under the Canada Emergency Wage Subsidy (“CEWS”) and Canada Emergency Rent (“CERS”) Subsidy programs year-over-year.

Operating Expenses
For the three months ended June 30, 2022, total operating expenses were $3,447 compared to $2,399 for the three months ended June 30, 2021, representing a net increase of $1,048. The increase was mainly driven by higher selling, general and administrative (“SG&A”) expenses of $986, as well as higher depreciation and amortization and R&D expenses of $19 and $43, respectively. The increase in SG&A was largely reflective of the end of the CEWS program, higher headcount-related and travel and entertainment expenses, as well as higher advertising and promotion costs as we continued to invest in organic growth initiatives.

Net Loss on Convertible Note
The Company holds a convertible note receivable related to its minority interest in The Best You for an initial principal amount of $500, that could increase up to $1,250, contingent on certain events and conditions being met. This financial instrument is remeasured at fair value at each reporting period using the discounted cash flow method, adjusted based on changes in relevant credit spreads and changes in risk free rates, among other inputs. During the three and six months ended June 30, 2022, as a result of the increase in interest rates caused by general market conditions, we recorded a fair value loss of $95.

Cash and Cash Equivalents
Cash and cash equivalents were $10,502 at June 30 2022, reflecting a net decrease of $1,240 for the quarter, mainly due to the repayment of the Debentures. Refer to Repayment of Convertible Debentures earlier in this press release.

Non-IFRS Financial Measures
We report our financial results in accordance with International Financial Reporting Standards (“IFRS”). However, we use certain non-IFRS financial measures to assess our Company’s performance. We believe these to be useful to management, investors, and other financial stakeholders in assessing Crescita’s performance. The non-IFRS measures used in this press release do not have any standardized meaning prescribed by IFRS and are therefore not comparable to similar measures presented by other issuers. These measures should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with IFRS. The following are the Company’s non-IFRS measures along with their respective definitions:

1. EBITDA is defined as earnings before interest, income taxes, depreciation, and amortization.
2. Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, share of (profit) losses of associates, fair value (gains) losses, share-based compensation costs, goodwill and intangible asset impairment, and foreign exchange (gains) losses, as applicable.

Management believes that Adjusted EBITDA is an important measure of operating performance and cash flow and provides useful information to investors as it highlights trends in the underlying business that may not otherwise be apparent when relying solely on IFRS measures. Below is a reconciliation of EBITDA and Adjusted EBITDA to their closest IFRS measures.

Caution Concerning Limitations of Summary Financial Results Press Release
This summary earnings press release contains limited information meant to assist the reader in assessing Crescita’s performance, but it is not a suitable source of information for readers who are unfamiliar with Crescita and is not in any way a substitute for the Company’s Consolidated Audited Financial Statements and notes thereto, MD&A and latest Annual Information Form (“AIF”) which can be found on the Company’s profile on SEDAR at www.sedar.com.

About Crescita Therapeutics Inc.
Crescita (TSX: CTX and OTC US: CRRTF) is a growth-oriented, innovation-driven Canadian commercial dermatology company with in-house R&D and manufacturing capabilities. The Company offers a portfolio of high-quality, science-based non-prescription skincare products and early to commercial stage prescription products. We also own multiple proprietary transdermal delivery platforms that support the development of patented formulations to facilitate the delivery of active ingredients into or through the skin. For more information, visit www.crescitatherapeutics.com.

Forward-looking Statements
This press release contains “forward-looking information” within the meaning of applicable securities laws (collectively, “forward-looking statements”). Forward-looking statements can be identified by words such as: “anticipate”, “intend”, “plan”, “goal”, “seek”, “believe”, “project”, “estimate”, “expect”, “strategy”, “future”, “likely”, “may”, “should”, “will” and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the Company’s objectives, plans, goals, strategies, growth, performance, operating results, strategy for customer retention, product development, market position, business prospects, opportunities and industry trends and similar statements concerning anticipated future events, results, circumstances, performance or expectations. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on current beliefs, expectations and assumptions regarding the future of the Company’s business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Company’s control. Crescita’s actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not unduly rely on any of these forward-looking statements. Important factors that could cause Crescita’s actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others: economic and market conditions, the impact of the COVID-19 pandemic and the response thereto of governments and consumers, the Company’s ability to execute its growth strategies, reliance on third parties for clinical trials, marketing, distribution and commercialization, the impact of changing conditions in the regulatory environment and product development processes, manufacturing and supply risks, increasing competition in the industries in which the Company operates, the Company’s ability to meet its debt commitments, the impact of unexpected product liability matters, the impact of litigation involving the Company and/or its products, the impact of changes in relationships with customers and suppliers, the degree of intellectual property protection of the Company’s products, the degree of market acceptance of the Company’s products, developments and changes in applicable laws and regulations, as well as other risk factors discussed in the “Risk Factors” sections of the Company’s most recent annual MD&A for the year ended December 31, 2021 and the Company’s AIF dated March 22, 2022. Any forward-looking statement made in this press release is based only on information currently available and speaks only as of the date on which it is made. Except as required by applicable securities laws, Crescita undertakes no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

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¹Please refer to the Non-IFRS Financial Measures section of this press release.

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