Pediapharm Announces Q3 Results - 10th Consecutive Year-over-year Quarterly Growth

MONTREAL, QUEBEC--(Marketwired - Feb. 27, 2018) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Pediapharm Inc. (the "Company" or "Pediapharm") (TSX VENTURE:PDP)(OTCQB:PDDPF) is pleased to file its third quarter financial results ended December 31, 2017. All dollar amounts are expressed in Canadian currency and results are reported in accordance with IFRS accounting principles.

KEY HIGHLIGHTS - PERIOD ENDED DECEMBER 31, 2017

In the three-month period ended December 31, 2017, the Company achieved quarterly revenue of $2,356,782 (three-month period ended December 31, 2016 - $1,773,044), representing an increase of 33%. It is important to note that this is the first quarter where Relaxa's results can be compared to previous year due to the fact it was added to Pediapharm's product portfolio in late September 2016. Highlights for this quarter include:

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-- Revenue from Established brands (NYDA, Relaxa, Naproxen Suspension)

increased by 6%

-- Despite a reduction in the units of headlice treatments in the

September-December 2017 period (IMS-Data Sept-Dec 2017), NYDA

revenue increased by 4.5% and kept gaining market share across

Canada

-- 8.3% increase from Relaxa

-- 10.3% increase from Naproxen Suspension

-- Revenue from recently launched brands, Rupall and Otixal, respectively

launched in late January and May 2017, of over $462,000, which is

significantly higher than Management's original estimate

-- Adjusted EBITDA of ($582,381) vs ($628,702). This quarter included

additional investments for Rupall, due to the very positive response

from physicians, which will help accelerate revenue growth in upcoming

quarters

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In the nine-month period ended December 31, 2017, the Company achieved record revenue of $7,905,728 (nine-month period ended December 31, 2016 - $4,548,351), representing an increase of 74% including:

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-- Revenue from Established brands (NYDA, Relaxa, Naproxen Suspension)

increased by 38%

-- Despite a reduction in the units of headlice treatments in the

January-December 2017 period (IMS-Data Jan-Dec 2017), NYDA revenue

increased by 7.5% and kept gaining market share across Canada

-- Revenue from Relaxa which was in line with Management's estimate of

approximately $3.1 million on an annual basis

-- 16.7% increase from Naproxen Suspension

-- Revenue from recently launched brands, Rupall and Otixal, respectively

launched in late January and May 2017, of over $1.7 million, which is

significantly higher than Management's original estimate

-- Adjusted EBITDA of ($1,191,899) vs ($1,718,445)

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The Company continued its investments in the recently launched brands, especially with Rupall. Additional investments were deployed to allow the marketing and sales team to focus on the urticaria opportunity since antihistamines, such as Rupall, are used first-line to treat urticaria.

As previously stated, Management expects increases in selling and administrative expenses to be minimal when compared to previous years unless it sees specific opportunities where additional expenses would generate significant incremental revenue. The Company's plan remains to bring the Company into a positive operating cash flow situation in the next fiscal year.

On November 1st, 2017, Pediapharm announced Health Canada's notice of compliance (approval) for 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 Company expects to commercially launch Cuvposa in March 2018 using its current infrastructure.

The Company has net working capital of over $6.4 million as of December 31, 2017.

" We are very pleased with another consecutive quarterly revenue growth vs comparable quarters and with the fact we keep gaining market share in every segment" stated Sylvain Chretien, President and Chief Executive Officer of Pediapharm. "Established brands such as NYDA and Relaxa, as well as newly launched Rupall and Otixal, have all contributed to the 33% revenue growth. We keep being diligent regarding our selling and administrative expenses but when we see an opportunity that can significantly accelerate growth, we might decide to increase our investments accordingly. It was the case in this quarter with additional selling and marketing investments deployed for Rupall due to specific additional growth opportunities. We are excited about the March-April commercial launch of Cuvposa which will be done with our existing infrastructure and we remain very active regarding potential new transactions such as in-licensing agreements and product acquisitions. Finally, while seasonality still has an impact on quarterly results, we plan to generate positive EBITDA, on an annual basis, starting in the fiscal year that begins on April 1, 2018 ".

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. Regarding Otixal, which was launched in mid-May 2017, the Company estimates an annual peak sale potential of $4 million.

The Company has recently received Health Canada's notice of compliance (approval) for 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 Company expects to commercially launch Cuvposa in March 2018 using its current infrastructure.

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 approximately $4,700,000 in fiscal 2018 and has the potential to achieve annual peak revenues of $6,000,000 to $8,000,000 (IMS data and Management's estimate). Relaxa is on pace to reach approximately $3.1 million of revenue on an annual basis.

With the Company's established brands, 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, Otixal and Cuvposa.

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 in the next 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 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:

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PRODUCT INDICATION EST. ANNUAL PEAK LAUNCH DATE OR EST.

SALES (CDN$) LAUNCH DATE

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NYDA(R) Head lice treatment $6-8M 2012

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Relaxa(TM) Occasional 4-6M Acquired by Pediapharm

constipation in September 2016

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Naproxen Juvenile Arthritis -1-2M Re-launched by

suspension Medical Pain Pediapharm in March

Conditions 2015

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Rupall(TM) Symptoms of Allergy 10M-12M January 2017

- Urticaria

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Otixal(TM) Ear Infection 4M May 2017

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Cuvposa(TM) Severe Drooling - 4-5M Approved in Oct 2017

Cerebral Palsy To be launched in

March '18

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TOTAL 30-35M

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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") as well as potential product acquisitions. 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 and Otixal in May 2017, as well as the upcoming launch of Cuvposa. Furthermore, Pediapharm expects continuous revenue growth from Pediapharm's established brands 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 in the next 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 December 31, 2017

REVENUE

For the three months ended December 31, 2017, total revenue reached $2,356,782 compared with revenue of $1,773,044 in the three months ended December 31, 2016, representing a 33% increase. Revenue from NYDA increased by 4.5%. Management also closely monitors data from IMS Health, an audited third-party provider of sales data and the overall units of head lice treatment in Canada has decreased by 18.7% (IMS-Data Sept-Dec 2017). Therefore, while the overall market decreases, possibly due to a reduction of headlice outbreak, NYDA keeps gaining market share. Revenue from Pediapharm naproxen suspension increased by 10.3%. Revenue from recently launched brands, Rupall and Otixal, respectively launched in late January and May 2017, reached over $460,000, which is significantly higher than Management's original estimate. This quarter is the first full quarter where a quarterly comparison is possible for Relaxa as a result of the September 19, 2016 transaction. Revenue from Relaxa increased by 8.3%.

For the nine months ended December 31, 2017, total revenue reached $7,905,728 compared with revenue of $4,548,351 in the nine months ended December 31, 2016, representing a 74% increase. Revenue from NYDA increased by7.5%. Management also closely monitors data from IMS Health, an audited third-party provider of sales data and the overall units of head lice treatment in Canada has decreased by 13% (IMS-Data Jan-Dec 2017). Therefore, while the overall market decreases, possibly due to a reduction of headlice outbreak, NYDA keeps gaining market share. Revenue from Pediapharm naproxen suspension increased by 16.7%. Revenue from recently launched brands, Rupall and Otixal, respectively launched in late January and May 2017, reached over $1.7 million, which is significantly higher than Management's original estimate. Revenue from Relaxa as a result of the September 19, 2016 transaction, is line to achieve $3.1 million on an annual basis.

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 December 31, 2017, gross profit reached $1,178,654, representing an increase of 32% (three months ended December 31, 2016 - $891,893). Gross margin as a percentage of revenue was 50% (three months ended December 31, 2016 - 48%). Relaxa, which has lower gross margins due to the nature of its product category, has a negative impact on total gross margin percentages. Over time, with the expected revenue growth from NYDA, Rupall, Otixal and Cuvposa, revenue from Relaxa will represent a smaller percentage of total revenue and hence, Management estimates that total gross margins as a percentage of revenue will improve and ultimately reach 60-70%.

For the nine months ended December 31, 2017, gross profit reached $4,180,933, representing an increase of 54% (nine months ended December 31, 2016 - $2,716,361). Gross margin as a percentage of revenue was 53% (nine months ended December 31, 2016 - 57%). 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, Otixal and Cuvposa, revenue from Relaxa will represent a smaller percentage of total 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 December 31, 2017, selling and administrative expenses reached $1,881,129 (three months ended December 31, 2016 - $1,656,245). For the nine months ended December 31, 2017, selling and administrative expenses reached $5,799,022 (nine months ended December 31, 2016 - $4,931,854). The increase reflects the Company's commitment to invest in new product launches while having a minimal impact on operating expenses. Management believes these investments in Rupall and Otixal are key to the overall success of the Company.

OTHER INCOME

In the three and nine months ended December 31, 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.

ADJUSTED EBITDA(1)

Adjusted EBITDA, for the three-month period ended December 31, 2017 was ($582,381) compared to ($628,702) for the three-month period ended December 31, 2016. The improvement is mainly due to the increase gross profit driven by a 33% increase in revenue. Adjusted EBITDA, for the nine-month period ended December 31, 2017 was ($1,191,899) compared to ($1,718,445) for the nine-month period ended December 31, 2016. The improvement is mainly due to the increase gross profit driven by a 74% increase in revenue. This was somewhat offset by the additional approximate selling and marketing expenses related to the launches of Rupall and Otixal, which Management believes are key to the overall success of the Company.

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December 31, December 31, December 31, December 31,

2017 2016 2017 2016

(3 months) (3 months) (9 months) (9 months)

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Revenue from

Products 2,356,782 $1,694,294 7,902,998 $4,308,936

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Revenue from

Commissions - 78,750 2,730 239,415

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TOTAL Revenue 2.356,782 1,773,044 7,905,728 4,548,351

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Gross Profit 1,178,654 891,893 4,180,933 2,716,361

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Selling and

administrative

expenses 1,881,129 1,656,245 5,799,022 4,931,854

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Other Income - - - 2,570,200

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Operating profit

(loss) (716,585) (783,507) (1,606,522) 328,161

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Net profit

(loss) (1,006,092) (1,047,750) (2,460,651) (443,274)

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Cash flow from

(used in)

operating

activities (286,282) (765,653) (3,212,771) (510,882)

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Cash flow from

(used in)

investing

activities (50,218) (229,271) (349,349) (314,840)

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Cash flow from

(used in)

financing

activities - - 4,956,967 (378)

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(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 December 31,

2017 was ($582,381) compared to ($628,702) for the three-month period

ended December 31, 2016. The improvement is mainly due to the increase

in gross profit driven by a 33% increase in revenue. Adjusted EBITDA for

the nine-month period ended December 31, 2017 was ($1,191,899) compared

to ($1,718,445) for the nine-month period ended December 31, 2016. The

improvement is mainly due to the increase in gross profit driven by a

74% increase in revenue. This was somewhat offset by the additional

selling and marketing expenses related to the launches of Rupall and

Otixal.

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For the

For the For the For the 9-month period

3-month period 3-month period 9-month period ended

ended ended ended December

December 31, December 31, December 31, 31,

2017 2016 2017 2016

$ $ $ $

Net Income

(Loss) and

Comprehensive

Income (Loss) (1,006,092) (1,047,750) (2,460,651) (443,274)

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Add Back:

Depreciation &

Amort.

(property,

equipment,

intangible

assets) 60,316 35,828 158,419 97,246

Amortization of

financing fees 46,682 36,630 131,970 103,553

Interest

expenses 168,667 166,833 504,167 504,170

Other non-cash

finance costs 86,967 69,455 246,901 197,182

Interest income (12,809) (8,676) (28,909) (33,469)

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EBITDA (656,269) (747,680) (1,448,103) 425,408

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Income from sale

of assets - - - (2,570,200)

Share-based

compensation 73,888 118,978 256,204 426,347

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ADJUSTED EBITDA (582,381) (628,702) (1,191,899) (1,718,445)

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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(R), a breakthrough treatment for head lice; Relaxa(TM), an osmotic laxative used to treat constipation; EpiCeram(R), a non-steroid emulsion for eczema; naproxen suspension, indicated to treat pain and inflammation due to various conditions, including Juvenile Idiopathic Arthritis; Rupall(TM), an innovative new allergy medication with a unique mode of action; Otixal(TM), the first and only antibiotic and steroid combination ear drop available in single, sterile, preservative-free and unit-dose packaging; and Cuvposa(TM), 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.

514-762-2626 ext. 201

sylvain.chretien@pedia-pharm.com

Roland Boivin, Chief Financial Officer

Pediapharm Inc.

514-762-2626 ext. 202

roland.boivin@pedia-pharm.com

Frank Candido

Direct Financial Strategies and Communication Inc.

514-969-5530

directmtl@gmail.com

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