CTX Crescita Therapeutics Inc

- Continued Expansion of Pliaglis® Worldwide - Strong Cash Balance of $13.1 Million - Growth in Manufacturing Segment due to New Purchase Orders

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, 2021 (“Q2-F2021”) and provided a corporate update. All amounts presented are in thousands of Canadian dollars (“CAD”) unless otherwise noted.

Financial Highlights

Q2-F2021 vs. Q2-F2020

• Revenue was $2,949 compared to $1,733, an increase of $1,216;
• Gross profit was $1,722 compared to $1,092, an increase of $630;
• Operating expenses were $2,399 compared to $2,318, an increase of $81;
• Adjusted EBITDA1 was $(269) compared to $(781), an improvement of $512;
• Ending cash position was $13,083 compared to $9,265, an increase of $3,818.

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

Q2-F2021 and Subsequent Corporate Developments

Expansion of Production Volumes within the Manufacturing and Services Segment

• We received firm purchase orders of approximately $7 million within our Manufacturing and Services segment, representing a significant increase in production and sales volume over the next 12 months. The increase in volume is a result of our customers ordering product to support anticipated launches into new key markets and therefore may not be representative of future orders.

Launch of Pliaglis in Austria

• Our licensing partner, Pelpharma Handels GmbH (“Pelpharma”), launched Pliaglis in Austria.

Licensing Agreement for Pliaglis with Croma Pharma GmbH

• We entered into an exclusive commercialization and development license agreement with Croma Pharma GmbH (“Croma”), a globally acclaimed pharmaceutical company with specializations in medical aesthetics, ophthalmology, and orthopaedics, for the rights to Pliaglis in nine countries comprising: Germany, the United Kingdom, Ireland, Switzerland, Brazil, Romania, Belgium, the Netherlands and Luxembourg. Crescita is eligible to receive a combination of upfront, cumulative sales and other milestone payments of up to €1.25 million over the term of the agreement with a potential for further cumulative sales milestones based on tranches of incremental sales.

Expansion of our Senior Leadership Team

• Mr. François Lafortune joined Crescita’s senior leadership team as Executive Vice-President and General Manager. This new senior management position is intended to drive growth within our Commercial Skincare and Manufacturing and Services segments.

   

Corporate Update

Serge Verreault, President and CEO of Crescita commented: “During the quarter, we achieved a number of key milestones as we executed our strategic growth initiatives. We continued to expand our Pliaglis footprint with a 9-country licensing deal with Croma which is well positioned to execute successful multi-country launches. Our partner, Pelpharma, launched Pliaglis in Austria, and Cantabria reported positive Pliaglis sales momentum in Italy with record-high sales for the quarter. In the United States, we didn’t recognize any Pliagllis royalties in Q2, as Taro continues to face commercial challenges. On the medical aesthetics side, we launched NCTF in April. As post-pandemic conditions normalize across Canada, we believe that our revenues should continue to improve. On another high note, we received purchase orders of approximately $7 million, which brings significant production volumes to our plant, a long-time objective for Crescita. These developments contribute to increasing recurring revenue streams and move us closer to our goal of sustained profitability for our shareholders.”

Mr. Verreault added: “I am also pleased with our Q2 results which showed an overall recovery in Commercial Skincare sales versus last year. We continue to grow our commercial sales by furthering brand awareness through various direct-to-consumer digital marketing initiatives. We believe that our approach to direct-to-consumer marketing will bring us closer to end consumers, leading to more opportunities for direct engagement and increased brand awareness. We are creating a solid platform for upcoming growth initiatives in 2022 and beyond with the addition of key members to our sales and marketing teams to support the launch of the ART-FILLER range, our hyaluronic acid-based dermal fillers, anticipated in the first half of 2022. We also welcomed Mr. François Lafortune to the newly created position of Executive Vice President and General Manager. François has a solid track record of domestic and international strategic management experience in the cosmetics industry and will be pivotal to our initiatives to grow our skincare and manufacturing businesses.”

Mr. Verreault concluded: “We will have intense focus on execution and financial discipline in implementing our growth strategies, including elevating our brands and manufacturing business, and further expanding our international footprint through strategic partnerships for Pliaglis. We maintain a strong liquidity position with $13.1 million in cash and $2.2 million available under our credit facility at June 30, 2021, which allows us to continue to pursue strategic M&A, an integral part of our growth strategy.”

Q2-F2021 Financial Results

Note: The Management’s Discussion and Analysis (“MD&A”), the unaudited Condensed Consolidated Interim Financial Statements and accompanying notes for the three and six months ended June 30, 2021 are available at www.crescitatherapeutics.com/investors and have been filed with SEDAR at www.sedar.com.

Summary Financial Results

In thousands of CAD, except per share data and number of shares

Three months ended June 30,

Six months ended June 30,

2021

2020

2021

2020

 

$

$

$

$

Commercial Skincare

1,869

1,304

3,636

2,843

Licensing and Royalties

475

413

1,281

1,866

Manufacturing and Services

605

16

1,297

839

Revenues

2,949

1,733

6,214

5,548

Cost of goods sold

1,227

641

2,376

1,992

Gross profit

1,722

1,092

3,838

3,556

Gross margin (%)

58.4%

63.0%

61.8%

64.1%

Research and development

118

336

337

564

Selling, general and administrative

1,930

1,568

3,793

3,751

Depreciation and amortization

351

414

682

828

Total operating expenses

2,399

2,318

4,812

5,143

Operating loss

(677)

(1,226)

(974)

(1,587)

Total other expenses

35

1,859

174

1,812

Loss before income taxes

(712)

(3,085)

(1,148)

(3,399)

Deferred income tax expense

-

-

-

180

Net loss

(712)

(3,085)

(1,148)

(3,579)

Adjusted EBITDA1

(269)

(781)

(182)

(669)

Earnings per share

Basic and Diluted

 

$ (0.03)

 

$ (0.15)

 

$ (0.06)

 

$ (0.17)

Weighted average number of common shares outstanding

Basic and Diluted

20,612,840

 

20,648,448

20,619,686

 

20,674,433

Selected Balance Sheet Information

 

 

 

 

Cash and cash equivalents, end of period

13,083

9,265

13,083

9,265

Selected Cash Flow Information

 

 

 

 

Cash (used in) provided by operating activities

(743)

84

(939)

350

Cash used in investing activities

(39)

(37)

(43)

(61)

Cash used in financing activities

(82)

(89)

(202)

(292)

Revenue

We have three reportable segments: 1) Commercial Skincare (“Commercial”), which manufactures branded non-prescription skincare products for sale in both the Canadian and international markets and commercializes Pliaglis® and New Cellular Treatment Factor® (“NCTF”) in Canada; 2) Licensing and Royalties (“Licensing”), which includes revenues generated from licensing our intellectual property related to Pliaglis or to our transdermal delivery technologies; and 3) Manufacturing and Services (“Manufacturing”), which includes revenue from contract manufacturing and product development services.

For the three months ended June 30, 2021, total revenue was $2,949 compared to $1,733 for the three months ended June 30, 2020. The increase of $1,216 came primarily from our Commercial and Manufacturing segments in the amounts of $565 and $589, respectively, largely representing the recovery in consumer demand following the COVID-19-related prolonged shutdowns of personal services businesses in Q2-F2020 and periods of 2021.

Gross Profit

For the three months ended June 30, 2021, gross profit was $1,722, representing a gross margin of 58.4%, compared to $1,092 and 63.0%, respectively, for the three months ended June 30, 2020. The increase of $630 in gross profit was mainly due to the recovery in the Commercial and Manufacturing segment sales year-over-year, as described above, while we continued to benefit from wage and rent subsidies under the Canada Emergency Wage Subsidy (“CEWS”) and Canada Emergency Rent Subsidy (“CERS”) programs during the quarter. The decrease in gross margin of 4.6% was mainly driven by: 1) the decrease in full-margin licensing revenue, compounded by the incremental cost of goods sold from supplying Pliaglis under the Austria licensing agreement; and 2) the unfavourable revenue mix of having higher revenue in our Manufacturing segment year-over-year, partly offset by the benefit of government subsidies versus Q2-F2020.

Operating Expenses

For the three months ended June 30, 2021, total operating expenses were $2,399 compared to $2,318 for the three months ended June 30, 2020. The year-over-year slight increase of $81 was primarily driven by higher selling, general and administrative (“SG&A”) expenses of $362, mainly reflecting a return to pre-COVID level headcount-related costs compared to Q2-F2020 which included temporary layoffs and salary reductions in response to the COVID-19 pandemic. These expenses were partly offset by lower research and development (“R&D”) spend of $218, largely reflecting the Company’s proportionate funding of clinical development activities related to CTX-101 in Q2-F2020 which did not repeat, and by lower depreciation and amortization expense of $63.

Other Expenses

We updated our impairment assessment at June 30, 2020, mainly to reflect the projected impact on our long-term forecasts of the pandemic-driven decrease in demand for our non-prescription skincare products and contract manufacturing and development services. As a result, we recognized an intangible assets impairment charge of $1,918 in that quarter.

Cash and Cash Equivalents

Cash and cash equivalents were $13,083 at June 30, 2021 compared to $9,265 at June 30, 2020, representing a year-over-year increase of $3,818, mainly due to cash of $5,151 received after the amendment to the Company’s licensing agreement with Taro Pharmaceuticals Inc. in Q3-F2020, partly offset by the cash used in operations.

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, other expenses (income), 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.

In thousands of CAD dollars

Three months ended June 30,

Six months ended June 30,

2021

2020

2021

2020

$

$

$

$

Net loss

(712)

(3,085)

(1,148)

(3,579)

Adjust for:

 

 

 

 

Depreciation and amortization

351

414

682

828

Interest expense (income), net

25

(8)

13

(5)

Deferred income tax expense

-

-

-

180

EBITDA

(336)

(2,679)

(453)

(2,576)

Adjust for:

 

 

 

 

Share-based compensation

57

31

110

90

Foreign exchange loss (gain)

10

(51)

161

(101)

Impairment of intangible assets

-

1,918

-

1,918

Adjusted EBITDA

(269)

(781)

(182)

(669)

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 Condensed Consolidated Interim Financial Statements and notes thereto, MD&A and our latest 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 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.

Our non-prescription portfolio comprises a wide variety of premium quality dermocosmetic products which include facial creams, cleansers, exfoliants, masks, serums and suncare, that each serve a different and personalized consumer need. The portfolio is designed to address preventive care to combating the first signs of aging, as well as all primary aesthetic skin concerns. Our products serve two sub-sets of the skincare market: aesthetics and medical aesthetics. Our national sales force calls on aesthetic practitioners, medical aesthetic clinics and medispas across Canada. In addition, our skincare brands are sold in certain Asian markets, such as Malaysia, South Korea and China through international distributors, as well as through various e-commerce platforms.

Crescita’s portfolio also includes Pliaglis, our lead prescription product, that utilizes our proprietary phase-changing topical cream Peel technology. 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, currently approved in over 25 different countries, is sold by commercial partners in the United States, Italy, Spain and Brazil, and was most recently launched in Austria. We market Pliaglis in the Canadian physician-dispensed skincare market through our own sales force.

Our expertise in topical product formulation and development can be leveraged in combination with our patented transdermal delivery technologies to develop and manufacture creams, liquids, gels, ointments and serums under our contract development and manufacturing organization (“CDMO”) infrastructure. We run our operations from our head office located in the heart of the Biotech City in Laval, Québec, where we also manufacture the majority of our non-prescription skincare products in our 50,000 square-foot facility.

Forward-looking Statements

This press release contains “forward-looking statements” within the meaning of applicable securities laws. 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, financial condition, our belief that we have sufficient liquidity to fund our business operations during the upcoming fiscal year, strategy for customer retention, growth, product development, market position, financial results and reserves, strategy for risk management, business prospects, opportunities and industry trends, the expected impact of, and responses taken by the Company with respect to, the COVID-19 pandemic, 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 our current beliefs, expectations and assumptions regarding the future of our 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 our most recent annual MD&A for the year ended December 31, 2020 and our AIF dated March 24, 2021. Any forward-looking statement made by the Company in this press release is based only on information currently available to management 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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FOR MORE INFORMATION, PLEASE CONTACT: Investor Relations Linda Kisa, CPA, CA Email: ir@crescitatx.com