CTX Crescita Therapeutics Inc

- Pliaglis® Licensed in 15 New Countries

- Minority Interest Acquisition of 6 Medical Aesthetic Clinics in Ontario

- Deployment of Capital to Support Growth in Medical Aesthetics

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 third quarter ended September 30, 2021 (“Q3-F2021”). All amounts presented are in thousands of Canadian dollars (“CAD”) unless otherwise noted.

Financial Highlights

Q3-F2021 vs. Q3-F2020

• Revenue was $2,993 compared to $7,301, a decrease of $4,308 primarily driven by the non-recurring impact of the amendment to our licensing agreement with Taro Pharmaceuticals Inc. (“Taro” and the “Taro Amendment”) for Pliaglis® in the U.S. in Q3-F2020, representing $4,483.
• Gross profit was $1,525 compared to $6,129, a decrease of $4,604;
• Operating expenses were $2,385 compared to $2,259, an increase of $126;
• Adjusted EBITDA1 was $(471) compared to $4,316, a decrease of $4,787;
• Ending cash position was $12,236, reflecting a net change of $(847) for the quarter of which $(500) related to the investment in The Best You®.

“During the quarter, we advanced our strategic growth initiatives. We signed a new licensing agreement with another key international partner, STADA, for the sale of Pliaglis in 15 new countries in the MENA region, bringing the total number of licensed countries to 32. Pliaglis is a pivotal asset with substantial potential for recurring revenue. We expanded our footprint in the medical aesthetics space through our partnership with Obagi for the exclusive distribution of the Obagi Medical® product line in Canada. We acquired a minority interest in The Best You which will secure an expanded commercial platform for our existing brands as well as for the upcoming launch of the ART-FILLER® range in 2022. We are confident that these deals position us favourably for growth in the booming medical aesthetics market,” commented Serge Verreault, President and CEO of Crescita.

Q3-F2021 and Subsequent Corporate Developments

Appointment of New Member to the Board of Directors

• The Board appointed Ms. Deborah Shannon-Trudeau as an independent non-executive director effective November 10, 2021. Ms. Shannon-Trudeau has over 30 years’ experience in strategy, business development, commercial and manufacturing operations. Formerly, she was Senior Vice-President Licensing and International Business at Trudeau Corporation, a privately held company specializing in the design, development, and distribution of its own “Trudeau” branded kitchenware products where she pioneered the development of licensing and strategic partnerships.

Ms. Trudeau is Vice-Chair of the Board and Chair of the Governance Committee of the Royal Canadian Mint. In parallel, she serves on the Board of CORIM – Conseil des relations internationales de Montréal. She is a Director on the Board of Governors at St. Mary’s Hospital and served as Vice President of the Board of the Community Foundation of Greater Montreal where she continues to be involved in its development.

In 2018, Ms. Trudeau became the second Canadian to serve for a two-year term as Global President and Chair of the Board of the International Women’s Forum (“IWF”), headquartered in Washington D.C., an organization counting more that 7,500 women leaders active in 33 countries with a purpose to advance women’s leadership. A dedicated IWF advocate for many years, she has served as a mentor/sponsor to many young women professionals and continues to serve on the Global Board of IWF as Director Emeritus. A graduate of Queen’s University in Health Sciences, Ms. Shannon-Trudeau is bilingual and was recognized as a Canadian Diversity Champion by Women of Influence and as a Women’s Executive Network (“WXN”) Top 100 honoree.

Amendment to Credit Facility

• We amended our existing revolving demand operating credit facility for a temporary $2.5 million increase in the available amount from $3.5 million to $6.0 million until April 30, 2022. The temporary increase provides us with additional financial flexibility to fund increases in production volumes in the Manufacturing segment, including approximately $7 million of new orders received In July, and for business development opportunities. The Company has not drawn down any amounts from this facility.

Distribution Agreement with Obagi Cosmeceuticals LLC

• We entered into a distribution agreement with Obagi Cosmeceuticals LLC (“Obagi”) for the exclusive rights to promote, distribute and sell the Obagi Medical® product line in Canada. The Obagi Medical line provides skincare products formulated to minimize signs of aging, address dark spots, hyperpigmentation, fine lines and wrinkles and to protect and enhance skin tone and texture. We expect to launch the Obagi line nationwide through our existing sales network in the first half of 2022.

Acquisition of Minority Interest in The Best You

• We acquired a minority interest in Akyucorp Ltd. d/b/a The Best You, a privately held network of six medical aesthetic clinics in the province of Ontario (“The Best You”). In consideration for the minority interest investment, Crescita issued 470,128 common shares at a price of $0.70 per common share. We will also support The Best You’s growth strategy by investing in a secured convertible promissory note with an initial principal amount of $0.5M that could grow to $1.25M based on financial performance and certain events and conditions being met.

Licensing Agreement for Pliaglis with STADA MENA DWC-LLC

• We entered into a commercialization and development license agreement with STADA MENA DWC-LLC (“STADA”) for the exclusive rights to Pliaglis® in 15 countries in the Middle East and North Africa (“MENA”) region. STADA is a subsidiary of STADA Arzneimittel AG, a specialty pharma, generics and consumer healthcare group. Crescita received an upfront payment and will be the exclusive supplier of Pliaglis.

Q3-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 nine months ended September 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

September 30,

Nine months ended

September 30,

 

2021

 

2020

 

2021

 

2020

 

$

$

$

$

Commercial Skincare

 

1,563

 

1,782

 

5,199

 

4,625

Licensing and Royalties

 

319

 

4,999

 

1,600

 

6,865

Manufacturing and Services

 

1,111

 

520

 

2,408

 

1,359

Revenues

 

2,993

 

7,301

 

9,207

 

12,849

Cost of goods sold

 

1,468

 

1,172

 

3,844

 

3,164

Gross profit

 

1,525

 

6,129

 

5,363

 

9,685

Gross margin (%)

 

51.0%

 

83.9%

 

58.2%

 

75.4%

Research and development

 

126

 

212

 

463

 

776

Selling, general and administrative

 

1,909

 

1,632

 

5,702

 

5,383

Depreciation and amortization

 

350

 

415

 

1,032

 

1,243

Total operating expenses

 

2,385

 

2,259

 

7,197

 

7,402

Operating profit (loss)

 

(860)

 

3,870

 

(1,834)

 

2,283

Total other (income) expenses

 

40

 

(737)

 

214

 

1,075

Income (loss) before income taxes

 

(900)

 

4,607

 

(2,048)

 

1,208

Deferred income tax expense

 

-

 

399

 

-

 

579

Net income (loss)

 

(900)

 

4,208

 

(2,048)

 

629

Adjusted EBITDA1

 

(471)

 

4,316

 

(653)

 

3,647

Earnings per share

 

Basic

Diluted

$

$

(0.04)

(0.04)

$

$

0.20

0.19

$

$

(0.10)

(0.10)

$

$

0.03

0.03

Weighted average number of common shares outstanding

 

Basic

Diluted

20,761,085

20,761,085

20,648,448

21,796,236

20,667,337

20,667,337

20,665,803

21,995,583

Selected Balance Sheet Information

 

 

 

 

Cash and cash equivalents, end of period

 

 

 

12,236

 

13,856

Selected Cash Flow Information

 

 

 

 

Cash provided by (used in) operating activities

 

(189)

 

4,693

 

(1,128)

 

5,043

Cash used in investing activities

 

(581)

 

(1)

 

(624)

 

(62)

Cash used in financing activities

 

(104)

 

(90)

 

(306)

 

(382)

Revenue

We have three reportable segments: 1) Commercial Skincare (“Commercial”), which manufactures and sells branded non-prescription skincare products in both the Canadian and international markets, while also commercializing 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 September 30, 2021, total revenue was $2,993 compared to $7,301 for the three months ended September 30, 2020, representing a decrease of $4,308. The decrease came primarily from our Licensing segment in the amount of $4,680, largely due to the impact of the Taro Amendment of $4,483 in Q3-F2020 which did not repeat. Revenue from our Commercial segment posted an overall decrease of $219, mainly due to lower export and protective personal equipment sales year-over-year, while the performance of our core

brands continued to improve in the Canadian market. These reductions were partly offset by an increase of $591 in our Manufacturing segment from higher volumes with new and existing clients.

Gross Profit

For the three months ended September 30, 2021, gross profit was $1,525, representing a gross margin of 51.0%, compared to $6,129 and 83.9%, respectively, for the three months ended September 30, 2020. The decrease of $4,604 in gross profit was mainly due to the full margin benefit of the Taro Amendment recognized in Q3-F2020, which did not repeat, and to a lesser extent from the uptake in the Manufacturing segment sales year-over-year. The decrease in gross margin of 32.9% was mainly driven by the decrease in full-margin licensing revenue and the unfavourable revenue mix of having higher revenue in our Manufacturing segment year-over-year.

Operating Expenses

For the three months ended September 30, 2021, total operating expenses were $2,385 compared to $2,259 for the three months ended September 30, 2020, representing a slight increase of $126. The increase was primarily driven by higher selling, general and administrative (“SG&A”) expenses of $277, mainly reflecting investments in advertising and promotion to grow our brands, in various key positions across the organization, incremental legal fees in support of business development activities, and lower government subsidies in Q3-F2021 versus Q3-F2020. These additional costs were partly offset by lower research and development (“R&D”) spend of $86 and by lower depreciation and amortization expense of $65.

Other (Income) Expenses

In Q3-F2020, we recognized $668 (US$500) in connection with the termination of a non-financial clause as part of the Taro Amendment regarding the supply of Pliaglis to non-U.S. territories.

Cash and Cash Equivalents

Cash and cash equivalents were $12,236 at September 30, 2021, reflecting a net change for the quarter of $(847), mainly due to the investment in a secured convertible promissory note in the amount of $500.

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 (income) expenses, 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

September 30,

Nine months ended

September 30,

2021

2020

2021

2020

$

$

$

$

Net income (loss)

(900)

4,208

(2,048)

629

Adjust for:

 

 

 

 

Depreciation and amortization

350

415

1,032

1,243

Interest (income) expense, net

27

(5)

40

(10)

Deferred income tax expense

-

399

-

579

EBITDA

(523)

5,017

(976)

2,441

Adjust for:

 

 

 

 

Share-based compensation

39

31

149

121

Foreign exchange (gain) loss

13

(64)

174

(165)

Impairment of intangible assets

-

-

-

1,918

Taro Amendment

-

(668)

-

(668)

Adjusted EBITDA

(471)

4,316

(653)

3,647

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.

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, 2020 and the Company’s AIF dated March 24, 2021. 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.

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

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Crescita Therapeutics Investor Relations Linda Kisa, CPA, CA Email: lkisa@crescitatx.com