Crescita Reports Third Quarter 2020 Results

Strong Ending Cash Balance of $13.9M

LAVAL, QC, Nov. 12, 2020 /CNW Telbec/ Crescita Therapeutics Inc. (TSX: CTX) (OTC US: CRRTF) (“Crescita” or the “Company”), a growth-oriented, innovation-driven Canadian commercial dermatology company with in-house research & development (“R&D”) and manufacturing capabilities, today reported its financial results for the third quarter ended September 30, 2020 (“Q3-F2020"). All amounts presented are in thousands of Canadian dollars (“CAD”) unless otherwise noted.

Financial Highlights – Q3-F2020 vs. Q3-F2019

• Revenue was $7,301 compared to $4,906, an increase of $2,395;
• In Q3-F2020, the Company amended its licensing agreement with commercial partner Taro Pharmaceuticals Inc. (“Taro”) for Pliaglis^® in the U.S. and received a total of $5,151 (US$3,855). Revenue was recorded as follows:
  • $4,483 (US$3,355) as licensing revenue (See Revenue and Q3-F2020 Corporate Developments);
  • $668 (US$500) as Other Income (See Other Income – Taro Amendment);
• Gross profit was $6,129 representing an increase of $2,686;
• Operating expenses (excluding COGS) were $2,259, compared to $2,965, a decrease of $706;
• Adjusted EBITDA was $4,316 compared to $939, an increase of $3,377;
• Ending cash position was $13,856, an increase of $851 year-over-year and $4,591 versus Q2-F2020.

“We delivered a strong quarter with a record-high cash balance since Q1-F2016, as we continue to focus on finding commercial partners for Pliaglis. Over the last few months, we have advanced licensing opportunities for Pliaglis in the rest of world, most recently signing agreements in Austria, Mexico, and perhaps the most meaningful for our future, China,” commented Serge Verreault, President and Chief Executive Officer of Crescita. “Sales in our Commercial Skincare segment posted a modest increase versus the prior year, reflecting the reopening of the economy in the summer months and showed an encouraging trend as we headed into the second wave of the pandemic. We are cautiously optimistic but cannot discount the impact that any other government-mandated closures may have in the coming months.”

“Our goal remains to secure recurring revenue streams for the future, and we are evaluating ways to best deploy our cash on hand, including strategic investments to grow our Company. On a separate note, I would like to thank our employees for their exceptional work during this difficult time and our clients for their trust and loyalty,” added Mr. Verreault.

Q3-F2020 Corporate Developments

• Patent Granted for Enhanced Formulation of Pliaglis
  On August 25, 2020, the Company was granted U.S. Patent No. 10,751,305 for Solid-Forming Topical Formulations for Pain Control by the United States Patent and Trademark Office which covers an enhanced formulation of Pliaglis through January 14, 2031.
• Licensing Agreement for Pliaglis in Austria
  On August 12, 2020, the Company entered into a commercialization license agreement with Pelpharma, a privately held Austrian pharmaceutical company specializing in the treatment of various skin and nail diseases, granting them the exclusive rights to sell and distribute Pliaglis in Austria.
• Amendment to Development and Commercialization Agreement with Taro
  On July 28, 2020, the Company announced that it entered into an amendment to the development and commercialization agreement with Taro (the “Taro Amendment”) with regard to Pliaglis in the U.S. The Taro Amendment entitled the Company to receive a one-time payment in the aggregate amount of $5,151 (US$3,855).

Subsequent Events

• Licensing Agreement for Pliaglis in China
  On November 5, 2020, the Company announced that it entered into an exclusive agreement with Juyou-Biotechnology Co. Ltd (“Juyou”), a biotechnology company that develops and sells medical and cosmetic skin care products, for the commercialization and development of Pliaglis^® and an enhanced formulation of Pliaglis in mainland China.
• Licensing Agreement for Pliaglis in Mexico
  On October 19, 2020, the Company entered into a commercialization and license agreement with LIV LABORATÓRIOS (“LIV”), a division of MINOS Labs, a privately held Mexican group of pharmaceutical, consulting, and regulatory companies. LIV specializes in dermatology solutions and sells directly to physicians. The agreement grants LIV the exclusive rights to distribute and sell Pliaglis in Mexico.

Q3-F2020 Financial Results

Note: The Management’s Discussion and Analysis (“MD&A”), Condensed Consolidated Interim Financial Statements and accompanying notes for the three and nine months ended September 30, 2020 can be found at www.crescitatherapeutics.com/investors and have been filed on SEDAR at www.sedar.com.

Summary Financial Results

Revenue
The Company generates revenue from its three reportable segments: 1) Commercial Skincare (“Commercial”), which manufactures branded non-prescription skincare products for sale in both the Canadian and international markets; 2) Licensing and Royalties (“Licensing”), which includes revenue from the licensing of intellectual property related to Pliaglis or for the use of its transdermal delivery technologies; and 3) Manufacturing and Services (“Manufacturing”), which includes revenue from contract manufacturing and product development services (“CDMO”) offered to our clients.

For the three months ended September 30, 2020, total revenue was $7,301 compared to $4,906 for the three months ended September 30, 2019, representing a year-over-year increase of $2,395. The increase came primarily from the Licensing segment, representing $2,462, as a result of the Taro Amendment concluded during the quarter of $4,483, and to a lesser extent from the Commercial Skincare segment, representing a slight increase of $77, primarily because of incremental sales of hand sanitizers and personal protective equipment starter kits. These increases were partly offset by the fourth and final cumulative sales milestone of $1,324 (US$1,000) in Q3-F2019 under the licensing agreement with Taro, which did not repeat in 2020, as well as lower royalties on global Pliaglis sales of $697 year-over-year, and a decrease of $144 in the Manufacturing segment, mainly due to a reduction in work volumes from our contract manufacturing clients due to pandemic-driven decreases in demand.

For the nine months ended September 30, 2020, total revenue was $12,849 compared to $18,517 in the comparable nine-month period of 2019, representing a decrease of $5,668. The Commercial Skincare and Manufacturing segments were impacted by $765 and $731, respectively, as a result of lower demand for our products and services due to COVID-19-related shutdowns of personal services businesses such as spas and medispas throughout most of the second quarter of 2020. The Licensing segment posted a decrease of $4,172 year-over-year primarily due to the aggregate amount of $5,459 recognized in the first nine months of 2019 in connection with the Cantabria Agreement, which did not repeat in 2020, lower royalties on global Pliaglis sales of $967, and sales milestones of $2,645 (US$2,000), which did not repeat in 2020, partly offset by the $4,483 received from the Taro Amendment.

Gross Profit
For the three months ended September 30, 2020, total gross profit was $6,129, representing a gross margin of 83.9%, compared to $3,443 or a gross margin of 70.2% for the three months ended September 30, 2019. The year-over-year increase in gross profit of $2,686 and improvement in gross margin of 13.7% were primarily due to the increase in high margin Licensing revenue, as explained above, combined with lower costs associated to earning royalties on Pliaglis year-over-year.

For the nine months ended September 30, 2020, total gross profit was $9,685, representing a gross margin of 75.4%, compared to $14,404 or a gross margin of 77.8% for the comparative nine months of 2019. The decreases in gross profit of $4,719 and in gross margin of 2.4% were mainly due to: the decrease in high margin licensing revenue, the COVID-19 related business and product demand disruptions, as well as the timing and mix of CDMO sales driving the decreases in our Commercial Skincare and Manufacturing segments, respectively, partly offset by the lower costs associated to earning royalties on Pliaglis year-over-year.

Operating Expenses (excluding COGS)
For the three and nine months ended September 30, 2020, total operating expenses were $2,259 and $7,402, compared to $2,965 and $8,850, for the three and nine months ended September 30, 2019. The year-over-year decreases $706 and $1,448 were mainly driven by lower selling, general and administrative (“SG&A”) and R&D expenses. Late in Q1-F2020, we initiated cash conservation measures in response to the COVID-19 pandemic which contributed to the year-over-year decreases. The measures included temporary layoffs and salary reductions. In addition, we had the benefit of wage subsidies under the CEWS program of $259 and $557, respectively, for the three and nine months ended September 30, 2020, which were recorded against SG&A-related compensation, as well as savings due to certain unfilled positions.

Impairment of Intangible Assets
For the nine months ended September 30, 2020, the Company recognized an impairment charge of $1,918, mainly to reflect the projected impact of the pandemic-driven decrease in demand for its non-prescription skincare products and contract manufacturing services on its long-term forecasts.

Other Income - Taro Amendment
As part of the Taro Amendment concluded during the quarter, the Company recognized $668 (US$500) in connection with the termination of a non-financial clause regarding the supply of Pliaglis to non-U.S. territories.

Income before Income Taxes
For the three months ended September 30, 2020, the Company reported income before income taxes of $4,607, compared to $332 for the three months ended September 30, 2019. The year-over-year increase of $4,275 was mainly attributable to: 1) the incremental total gross margin of $2,686 across our segments, largely due to the amounts received under the Taro Amendment; 2) a reduction in R&D and SG&A expenses of $250 and $460, respectively; 3) Other Income of $668 recognized as part of the Taro Amendment in connection with the termination of certain non-financial clauses; 4) a reduction in net interest expense of $74; and 5) the favourable impact of foreign exchange variances in the amount of $141 year-over-year.

For the nine months ended September 30, 2020, the Company reported income before income taxes of $1,208, compared to $3,897 reported for the nine months ended September 30, 2019. The year-over-year decrease of $2,689 was mainly attributable to: 1) the reduction in gross margin of $4,156 across all segments, excluding the impacts of both the Cantabria Agreement as well as the Taro Amendment; 2) the benefit of the upfront payment and guaranteed minimum royalties under the Cantabria Agreement of $3,772, net of contract termination fees recognized in Q2-F2019 which did not repeat; 3) the impairment charge of $1,918 taken in Q2-F2020; partly offset by 1) the aggregate impact of the Taro Amendment of $5,151; 2) the decrease in SG&A and R&D expenses of $952 and $562, respectively; 3) the reduction in net interest expense of $288; and 4) the favourable impact of net foreign exchange variances in the amount of $270.

Cash and Cash Equivalents
Cash and cash equivalents were $13,856 at September 30, 2020 compared to $13,005 at September 30, 2019 and $9,265 at June 30, 2020, representing increases of $851 and $4,591, respectively, mainly due to the cash received from the Taro Amendment. During the fourth quarter ended December 31, 2019, the Company repaid the outstanding balance of the Knight Loan in the amount of $3,570.

Non-IFRS Financial Measures
The Company reports its financial results in accordance with 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 from both a financial and operational standpoint. 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, other expenses or (income), share-based compensation costs, goodwill and intangible assets impairment, and foreign exchange (gains) or 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. A reconciliation of EBITDA and adjusted EBITDA to their closest IFRS measure can be found below.

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 Annual Information Form (“AIF”).

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 non-prescription skincare products and early to commercial stage prescription drug products and owns multiple proprietary drug delivery platforms that support the development of patented formulations that can facilitate the delivery of active ingredients into or through the skin.

Supported by a sales force covering Canada and executing a business to business to consumer marketing approach, Crescita sells its non-prescription skincare products domestically through spas, medispas, and medical aesthetic clinics, as well as internationally, through distributors. Crescita’s portfolio also includes a prescription product called Pliaglis^®, that utilizes the Company’s proprietary phase-changing topical cream Peel technology, a part of the DuraPeel™ family, which are self-occluding, film-forming cream/gel formulations, that provide extended release delivery of the active ingredients to the site of application. Pliaglis is a topical local anesthetic cream that provides safe and effective local dermal analgesia on intact skin prior to superficial dermatological procedures. The product is currently approved in over 25 different countries and sold by commercial partners in the U.S., Italy, Brazil, sold in Canada by the Company, and was most recently licensed to partners in Austria and Mexico and China.

Crescita’s expertise in product formulation and development can be leveraged in combination with its patented transdermal delivery technologies to develop and manufacture creams, liquids, gels, ointments and serums under its CDMO infrastructure. The Company operates out of a 50,000 square-foot facility located in Laval, Québec, which produces the majority of its non-prescription skincare products, such as LDR, Pro-Derm, Dermazulene and Alyria. Formulations manufactured by or for Crescita include cosmetics, natural health products and products with Drug Identification Numbers. For additional information, please visit www.crescitatherapeutics.com.

Forward-Looking Statements
This press release contains “forward-looking information” as defined under Canadian securities laws (collectively, “forward-looking statements”). The words “plans”, “expects”, “does not expect”, “goals”, “seek”, “strategy”, “future”, “estimates”, “intends”, “anticipates”, “does not anticipate”, “projected”, “believes” or variations of such words and phrases or statements to the effect that certain actions, events or results “may”, “will”, “could”, “would”, “should”, “might”, “likely”, “occur”, “be achieved” “continue” or “temporary” and similar expressions identify forward-looking statements and include statements regarding the Company’s plans, objectives and responses to the COVID-19 pandemic. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances contain forward-looking statements.

Forward-looking statements are not historical facts but instead represent management’s expectations, estimates, projections and assumptions regarding future events or circumstances. Such forward-looking statements are qualified in their entirety by the inherent risks, uncertainties and changes in circumstances surrounding future expectations which are difficult to predict and many of which are beyond the control of the Company. Forward-looking statements are necessarily based on a number of estimates and assumptions that, while considered reasonable by management of the Company as of the date of this press release, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Material factors and assumptions used to develop the forward-looking statements, and material risk factors that could cause actual results to differ materially from the forward-looking statements, include but are not limited to the risks of, and future impacts related to, COVID-19, including the response of domestic and international governments to the virus; the impact of COVID-19 on the Company’s operations, personnel, supply chain, product sales, royalties, customer demand and financial flexibility; changes in the business or affairs of Crescita; the ability of Crescita’s licensees to successfully market its products; competitive factors in the industries in which Crescita operates; relationships with customers, suppliers and licensees; changes in legal and regulatory requirements; foreign exchange and interest rates; prevailing economic conditions; and other factors, many of which are beyond the control of Crescita.

Additional 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, the risk factors included in Crescita’s most recent Annual Information Form under the heading “Risks Factors”, and as described from time to time in the reports and disclosure documents filed by Crescita with Canadian securities regulatory authorities and commissions. These and other factors should be considered carefully, and readers should not place undue reliance on Crescita’s forward-looking statements when making decisions, as forward-looking statements involve significant risks and uncertainties. Forward-looking statements should not be read as guarantees of future performance or results and will not necessarily be accurate indications of whether or not the times at or by which such performance or results will be achieved.

All forward-looking statements are based only on information currently available to the Company and are made as of the date of this press release. Except as expressly required by applicable Canadian securities law, the Company assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All forward-looking statements in this press release are qualified by these cautionary statements.

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SOURCE Crescita Therapeutics Inc.