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 fourth quarter (“Q4-F2020”) and fiscal year ended December 31, 2020 (“F2020”). All amounts presented are in thousands of Canadian dollars (“CAD”) unless otherwise noted.
Financial Highlights
Q4-F2020 vs. Q4-F2019
- Revenue was $2,791 compared to $3,820, a decrease of $1,029;
- Gross profit was $1,588 compared to $2,132, a decrease of $544;
- Operating expenses were $2,316 compared to $2,718, a decrease of $402;
- Adjusted EBITDA1 was $(446) compared to $6, a decrease of $452.
F2020 vs. F2019
- Revenue was $15,640 compared to $22,337, a decrease of $6,697;
- Royalty revenue from the U.S. sales of Pliaglis® under the Taro contract were $1,934, a decrease of $692, with no royalties in each of Q2 and Q4-F2020;
- Gross profit was $11,273 compared to $16,536, a decrease of $5,263;
- Operating expenses were $9,718 compared to $11,568, a decrease of $1,850;
- Adjusted EBITDA1 was $3,201 compared to $6,984, a decrease of $3,783;
- Generated $5,013 in cash, resulting in a closing cash position of $14,281 compared to $9,268;
- Recorded a non-cash impairment charge on intangible assets of $1,918 to reflect the projected impact of the decrease in demand for certain products and services due to COVID-19.
“Although fiscal 2020 was marked by challenges due to the COVID-19 pandemic, we have shown resilience by adapting to an evolving environment and focusing on the execution of our corporate growth strategy. The amendment to our agreement with Taro allowed us to solidify our liquidity position with a cash injection of $5.2M. We also capitalized on licensing opportunities for Pliaglis in Austria, Mexico and China, treading ahead to secure future recurring revenue streams,” commented Serge Verreault, President and CEO of Crescita. “With 2020 behind us, we are eager to pursue our growth trajectory in 2021 by maximizing the licensing of Pliaglis in untapped international markets, exploring strategic acquisition targets to gain critical mass, increasing our customer base, and strengthening our medical aesthetic business, starting with the upcoming launch of NCTF®.”
F2020 Corporate Developments
COVID-19
-
Restrictions imposed by various governments including customer closures and the reduction in aesthetic treatments and procedures in Canada and internationally negatively impacted our product sales of premium skincare brands as well as our third-party manufacturing services revenue during most of fiscal 2020. Despite these challenges, we remained agile in executing initiatives to mitigate some of the impacts of the pandemic:
- We engaged directly with consumers through various digital media platforms as well as the launch of an e-commerce website for Laboratoire Dr Renaud®, our lead aesthetic brand, to generate incremental sales;
- We applied for and obtained a Natural Health Number from Health Canada allowing us to produce and sell hand sanitizer in response to COVID-19.
We Continued to Advance Pliaglis in the Rest-of-World (“ROW”)
- China - We entered into an exclusive agreement with Juyou-Bio-Technology Co. Ltd, for the commercialization and development of Pliaglis in mainland China. In connection with the agreement, we received an upfront payment of $165 (US$125). While the regulatory approval of Pliaglis is pending in China, we are eligible to receive potential regulatory milestones as well sales milestones once the product is launched of up to US$1,000 and US$1,800, respectively.
- Mexico - We entered into a commercialization license agreement with LIV LABORATÓRIOS, granting them the exclusive rights to distribute and sell Pliaglis in Mexico.
- Austria - We entered into a commercialization license agreement with Pelpharma, granting them the exclusive rights to distribute and sell Pliaglis in Austria.
- Spain Launch - Our European licensing partner, Cantabria Labs Inc. (“Cantabria”), launched Pliaglis in Spain.
- Approval of Cantabria Manufacturing Facility - Cantabria received approval for its manufacturing facility in Spain to be the supplier of Pliaglis in Europe, which led to the recognition of $413 of incremental revenue under the contract (the “Cantabria Agreement”).
We Amended our Development and Commercialization License Agreement with Taro
- We amended our agreement with Taro Pharmaceuticals Inc. (“Taro” and the “Taro Amendment”) for Pliaglis in the U.S., resulting in a one-time total payment of $5,151.
We Improved our Access to Liquidity through a Credit Facility with the Royal Bank of Canada
- We secured a $3,500 revolving operating credit facility with the Royal Bank of Canada (subject to margin requirements). The credit facility remains undrawn.
We Signed an Exclusive Distribution Agreement to Bolster our Medical Aesthetic Business
- We entered into an exclusive distribution and promotion agreement with Laboratoires FILLMED for the distribution of the ART-FILLER® injectables range and the New Cellular Treatment Factor (“NCTF®”) in Canada. In January 2021, FILLMED submitted the application to Health Canada for a new Medical Device License for ART-FILLER as a Class III medical device. We are expecting to launch NCTF in the first half of 2021, and ART-FILLER in early 2022, subject to regulatory approval by Health Canada.
Q4-F2020 and F2020 Financial Results
Note: The Management’s Discussion and Analysis (“MD&A”), Consolidated Audited Financial Statements and accompanying notes for the fiscal year ended December 31, 2020 can be found 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
|
Twelve months ended
|
||||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|||||
|
$ |
$ |
$ |
$ |
||||||||
Commercial skincare |
|
2,079 |
|
2,210 |
|
6,704 |
|
7,600 |
||||
Licensing and royalties |
|
359 |
|
1,022 |
|
7,224 |
|
12,059 |
||||
Manufacturing and services |
|
353 |
|
588 |
|
1,712 |
|
2,678 |
||||
Revenues |
|
2,791 |
|
3,820 |
|
15,640 |
|
22,337 |
||||
Cost of goods sold |
|
1,203 |
|
1,688 |
|
4,367 |
|
5,801 |
||||
Gross Profit |
|
1,588 |
|
2,132 |
|
11,273 |
|
16,536 |
||||
Gross Margin (%) |
|
56.9% |
|
55.8% |
|
72.1% |
|
74.0% |
||||
Research and development |
|
325 |
|
38 |
|
1,101 |
|
1,376 |
||||
Selling, general and administrative |
|
1,743 |
|
2,128 |
|
7,126 |
|
8,463 |
||||
Depreciation and amortization |
|
248 |
|
552 |
|
1,491 |
|
1,729 |
||||
Total operating expenses |
|
2,316 |
|
2,718 |
|
9,718 |
|
11,568 |
||||
Operating profit (loss) |
|
(728) |
|
(586) |
|
1,555 |
|
4,968 |
||||
Total other expenses (income) |
|
(40) |
|
131 |
|
1,035 |
|
1,788 |
||||
Income (loss) before income taxes |
|
(688) |
|
(717) |
|
520 |
|
3,180 |
||||
Deferred income tax expense (recovery) |
|
(96) |
|
(234) |
|
483 |
|
1,325 |
||||
Net income (loss) |
|
(592) |
|
(483) |
|
37 |
|
1,855 |
||||
Adjusted EBITDA1 |
|
(446) |
|
6 |
|
3,201 |
|
6,984 |
||||
Earnings (loss) per share |
|
|
|
|
||||||||
Basic |
$ |
(0.03) |
$ |
(0.02) |
$ |
- |
$ |
0.09 |
||||
Diluted |
$ |
(0.03) |
$ |
(0.02) |
$ |
- |
$ |
0.09 |
||||
Weighted average number of common shares outstanding |
|
|
|
|
||||||||
Basic |
|
20,648,448 |
|
20,766,565 |
|
20,661,477 |
|
20,941,690 |
||||
Diluted |
|
20,648,448 |
|
22,540,834 |
|
20,969,205 |
|
22,496,719 |
||||
Selected Balance Sheet Information |
|
|
|
|
||||||||
Cash and cash equivalents, end of period |
|
14,281 |
|
9,268 |
|
14,281 |
|
9,268 |
||||
Selected Cash Flow Information |
|
|
|
|
||||||||
Cash provided by operating activities |
|
568 |
|
52 |
|
5,608 |
|
5,306 |
||||
Cash used in investing activities |
|
- |
|
(46) |
|
(59) |
|
(215) |
||||
Cash used in financing activities |
|
(94) |
|
(3,728) |
|
(476) |
|
(4,394) |
||||
1Please refer to the Non-IFRS Financial Measures section of this press release. |
||||||||||||
Revenue
The Company has three reportable segments: 1) Commercial Skincare (“Commercial”), which manufactures branded non-prescription skincare products for sale to the Canadian and international markets and commercializes Pliaglis in Canada; 2) Licensing and Royalties (“Licensing”), which includes revenue from licensing the 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 December 31, 2020, total revenue was $2,791 compared to $3,820 for the three months ended December 31, 2019. The decrease of $1,029 came primarily from the Licensing segment, representing $663. In Q4-F2019, we recognized the remaining regulatory milestone under the original agreement with Taro (the “Original Taro Agreement”) in connection with the FDA approval of an enhanced formulation of Pliaglis for the U.S. market in the amount of $988 (US$750). Commercial and Manufacturing revenue also decreased by $131 and $235, respectively from lower export sales due to the timing of shipments and a reduction in work volumes from our contract manufacturing clients due to pandemic-driven decreases in demand.
For the year ended December 31, 2020, total revenue was $15,640 compared to $22,337 for the year ended December 31, 2019, representing a decrease of $6,697, which was primarily driven by the decrease of $4,835 in the Licensing segment. The segment’s performance was impacted by the following non-recurring amounts from 2019: 1) the aggregate amount of $5,459 in connection with the Cantabria Agreement; 2) sales and regulatory milestones of $3,633 under the Original Taro Agreement, as well as lower royalties on global Pliaglis sales of $898, partly offset by the $4,483 received from the Taro Amendment in the current year. Also contributing to the overall revenue shortfall were the Commercial and Manufacturing segments, posting decreases of $896 and $966, respectively, mainly because of lower demand for our products and services as a result of temporary shutdowns of spas and medispas throughout most of Q2-F2020 due to COVID-19.
Gross Profit
For the three months ended December 31, 2020, gross profit was $1,588, representing a gross margin of 56.9%, compared to $2,132 and 55.8%, respectively for the three months ended December 31, 2019. The year-over-year decrease in gross profit of $544 was primarily due to the decrease in high margin licensing revenue, while the improvement in gross margin of 1.1% was largely due to our product mix and to the benefit of wage subsidies under the Canada Emergency Wage Subsidy (“CEWS”) program.
For the year ended December 31, 2020, gross profit was $11,273, representing a gross margin of 72.1%, compared to $16,536 and 74.0%, respectively for the year ended December 31, 2019. The decreases of $5,263 and 1.9%, respectively, were mainly due to the decrease in high margin licensing revenue and the business and product demand disruptions due to COVID-19, partly offset by wage subsidies under the CEWS program, and lower costs associated to earning royalties on Pliaglis year-over- year.
Operating Expenses
For the three months and year ended December 31, 2020, operating expenses were $2,316 and $9,718, compared to $2,718 and $11,568, for the three months and year ended December 31, 2019. The year-over-year decreases of $402 and $1,850, respectively, were mainly driven by lower selling, general and administrative (“SG&A”) expenses. Late in Q1-F2020, we initiated cash conservation measures in response to the COVID-19 pandemic which contributed significantly to the year-over-year decrease. In addition, we had the benefit of wage subsidies under the CEWS program of $165 and $722, respectively, for the three months and the year ended December 31, 2020, as well as savings from certain vacant positions versus the prior year, lower share-based compensation, and lower travel expenses due to shelter-in-place rules.
Other Expenses (Income)
During the year ended December 31, 2020, we recognized an impairment on intangible assets of $1,918 mainly to reflect the projected impact on long-term forecasts of the decrease in demand for our non-prescription skincare products and contract manufacturing and development services due to COVID-19. In addition, as part of the Taro Amendment, we recognized $668 as Other Income in connection with the termination of a non-financial clause regarding the supply of Pliaglis outside the U.S.
In the prior year, we recorded Other Expense of $1,274 including the costs to reacquire the Pliaglis ROW rights from Galderma S.A., as well as other transaction-related costs.
Income (Loss) Before Income Taxes
For the three months ended December 31, 2020, the Company reported a loss before income taxes of $688 compared to a loss before income taxes of $717 for the three months ended December 31, 2019. The year-over-year decrease of $29 was mainly attributable to: 1) savings in SG&A expenses of $385, a decrease in depreciation and amortization expense of $304, and a favourable variance in net interest of $154; partly offset by 2) lower gross profit across our segments of $544, largely as a result of the non-recurring regulatory milestone under the Original Taro Agreement in the amount of $988 (US$750) recognized in Q4-F2019, and 3) an increase in research and development (“R&D”) expenses of $287.
For the year ended December 31, 2020, the Company reported income before income taxes of $520 compared to $3,180 for the year ended December 31, 2019. The year-over-year decrease of $2,660 was mainly attributable to: 1) the reduction in gross profit of $4,700 across all segments, excluding the impacts of both the Cantabria Agreement as well as the Taro Amendment; 2) the net year-over-year benefit of the upfront payment and guaranteed minimum royalties under the Cantabria Agreement of $3,772, net of the non-recurring contract termination fees recognized in Q2-F2019; 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 $1,337 and $275, respectively; 3) the reduction in net interest expense of $442; and 4) the favourable impact of a net foreign exchange gain in the amount of $287 year-over-year.
Cash and Cash Equivalents
Cash and cash equivalents were $14,281 at December 31, 2020 compared to $9,268 at December 31, 2019, representing an increase of $5,013, mainly due to the cash received from the Taro Amendment. In addition, during Q4-F2019, we repaid the outstanding balance of the loan with Knight Therapeutics Inc. 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:
- EBITDA is defined as earnings before interest, income taxes, depreciation, and amortization.
- Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, other expenses (income), share-based compensation costs, impairment of goodwill and intangible assets, and foreign exchange (gains) losses.
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
|
Twelve months ended
|
||||||
2020 |
2019 |
2020 |
2019 |
|||||
Net income (loss) |
(592) |
(483) |
37 |
1,855 |
||||
Adjust for: |
|
|
|
|
||||
Depreciation and amortization |
248 |
552 |
1,491 |
1,729 |
||||
Interest expense (income), net |
(29) |
125 |
(39) |
403 |
||||
Deferred income tax expense (recovery) |
(96) |
(234) |
483 |
1,325 |
||||
EBITDA |
(469) |
(40) |
1,972 |
5,312 |
||||
Adjust for: |
|
|
|
|
||||
Share-based compensation |
34 |
40 |
155 |
287 |
||||
Foreign exchange (gain) loss |
(11) |
6 |
(176) |
111 |
||||
Other expenses (income) |
- |
- |
(668) |
1,274 |
||||
Impairment of intangible assets |
- |
- |
1,918 |
- |
||||
Adjusted EBITDA |
(446) |
6 |
3,201 |
6,984 |
||||
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 high-quality, science-based non-prescription skincare products and early to commercial stage prescription products. In addition, we own multiple proprietary transdermal delivery platforms that support the development of patented formulations that facilitate the delivery of active ingredients into or through the skin.
Our non-prescription portfolio includes 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 dermocosmetic products address two sub-sets of the skincare market: aesthetics and medical aesthetics. Our national sales force calls on aesthetic practitioners and 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 and 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 is currently approved in over 25 different countries, is sold by commercial partners in the U.S., Italy, Spain and Brazil, and was most recently licensed to commercial partners in Austria, Mexico and China. We also market Pliaglis in the Canadian physician-dispensed skincare market through our existing 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 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 annual management’s discussion and analysis for the year ended December 31, 2020 and the Company’s annual information form 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.
