Strong Ending Cash Balance of $9.3M
LAVAL, QC, Aug. 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 second quarter ended June 30, 2020 ("Q2-F2020").
All amounts in this press release are in thousands of Canadian dollars ("CAD") unless otherwise noted.
Financial Highlights - Q2-F2020 vs. Q2-F2019
- Revenue was $1,733, a decrease of $7,629. In Q2-F2019, the Company recognized $5,459 in up-front payments and guaranteed future minimum royalties in connection with the out-licensing agreement with Cantabria Labs ("Cantabria" and the "Cantabria Agreement");
- Gross profit was $1,092, representing a gross margin of 63.0%;
- Operating expenses (excluding COGS) were $2,318, a decrease of $1,012;
- Recorded a non-cash impairment charge on intangible assets of $1,918 to reflect the projected impact of the pandemic-driven decrease in demand for certain products and services;
- Adjusted EBITDA1 was $(781), a decrease of $5,864, mainly due to the revenue recognized in connection with the Cantabria Agreement in Q2-F2019 of $5,459;
- Ending cash position was $9,265, a decrease of $69 versus Q1-F2020 and flat versus Q4-F2019.
"While our Q2 results were affected by the COVID-19 pandemic, we are confident that the financial and operational measures we have taken ensure that Crescita is well positioned to participate in the industry recovery," said Serge Verreault, President and CEO. "Our strong liquidity position at the end of the quarter despite the pandemic, will be further enhanced by the approximately CAD$5.2 million to be received under the Taro contract amendment, and will allow us to continue investing strategically to grow our revenue streams and pursue business development opportunities."
Q2-F2020 Corporate Developments
- On June 24, 2020, Crescita's licensing partner, Cantabria Labs received approval from European regulatory authorities for its manufacturing facility in Santander Spain to be the supplier of Pliaglis® in Europe. In connection with the approval, the Company revised its estimate of the present value of future guaranteed minimum royalties to be received over the term of the contract, recognizing $413 in the quarter.
- On May 11, 2020, the Company started progressively re-opening its manufacturing and office facility following authorization from the Québec provincial government. The facility is now fully operational and the majority of the employees that were temporarily laid off have been rehired and restored to a five-day work week. In addition, executive salaries and board of directors fees, which had been temporarily reduced in response to the pandemic, were restored as of July 1, 2020.
- On July 28, 2020, the Company announced that it entered into an amendment to the development and commercialization agreement with Taro Pharmaceuticals Inc. ("Taro") with regard to Pliaglis® in the United States. The amendment entitles the Company to receive a one-time payment of US$3,900 (approximately CAD$5,200), largely representing a royalty adjustment to past sales as well as an upward modification of future royalty payments.
1Please refer to the Non-IFRS Financial Measures and EBITDA and Adjusted EBITDA Reconciliation sections of this press release.
Q2-F2020 Financial Results
Note: The Management's Discussion and Analysis ("MD&A"), Condensed Consolidated Interim Financial Statements and accompanying notes for the three and six months ended June 30, 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 earnings per share and number of shares
Three months ended June 30,
Six months ended June 30,
Cost of goods sold
Gross margin as a % of revenue
Research & development
Selling, general & administrative
Depreciation and Amortization
Total operating expenses (excl. COGS)
Operating profit (loss)
Total other expenses
Income (loss) before income taxes
Deferred income tax expense
Net income (loss)
Net income (loss) per share
Weighted average number of common shares
Selected Balance Sheet Information
Cash and cash equivalents, end of period
Selected Cash Flow Information
Cash provided by (used in) operating activities
Cash used in investing activities
Cash used in financing activities
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 June 30, 2020, total revenue was $1,733 compared to $9,362 for the three months ended June 30, 2019, representing a year-over-year decrease of $7,629. Revenues decreased across all three segments, with the largest decrease in the Licensing segment, representing $6,284 year-over-year. In Q2-F2019, the Company recognized a total of $5,459 in connection with the Cantabria Agreement, made up of $3,721 in up-front payments and $1,738 in future guaranteed minimum royalties, while in Q2-F2020, the Company recorded $413 in future guaranteed minimum royalties under the agreement. The Commercial and Manufacturing segments posted decreases of $663 and $682, respectively, mainly due to lower product demand driven by COVID-19-related shutdowns of personal services businesses such as spas and medispas, throughout most of the second quarter.
For the six months ended June 30, 2020, total revenue was $5,548 compared to $13,611 in the comparable six-month period of 2019. The decrease of $8,063 across all our segments was primarily a result of the same factors as discussed for the quarter.
Cost of Goods Sold ("COGS") and Gross Profit
For the three and six months ended June 30, 2020, total COGS were $641 and $1,992, respectively, compared to $1,423 and $2,650 for the three and six months ended June 30, 2019, representing decreases of $782 and $658, respectively. The year-over-year decreases were primarily due to lower revenue across all three segments, mainly as a result of COVID-19 related business and product demand disruptions, as explained previously, as well as the timing and mix of CDMO sales in our Manufacturing segment, partly offset by the lower cost of earning royalties on the net sales of Pliaglis in the Licensing segment versus the prior year periods.
For the three and six months ended June 30, 2020, gross profit was $1,092 and $3,556, representing a gross margin of 63.0% and 64.1%, respectively, compared to $7,939 or 84.8% and $10,961 or 80.5%, respectively, for the comparable three and six-month periods of 2019. The decreases in gross profit and gross margin for both periods were mainly due to: lower revenue across all three segments, as described previously, and specifically from the aggregate full margin revenue of $5,459 recognized under the Cantabria Agreement in Q2-F2019 which did not repeat, as well as the impact of our product mix and unfavourable manufacturing variances.
Operating Expenses (excluding COGS)
For the three months ended June 30, 2020, total operating expenses were $2,318, compared to $3,330 for the three months ended June 30, 2019, representing a year-over-year decrease of $1,012. The year-over-year decrease was mainly driven by lower selling, general and administrative ("SG&A") and R&D expenses of $743 and $273, respectively. The Q2-F2020 results reflect the full quarter's impact of cost savings from the cash conservation measures implemented by the Company in response to the COVID-19 pandemic.
For the six months ended June 30, 2020, total operating expenses were $5,143, compared to $5,885 for the six months ended June 30, 2019, representing a net year-over-year decrease of $742, mainly as a result of the implementation of measures in response to COVID-19, partly offset by higher depreciation and amortization expense in the first half of 2020.
Impairment of Intangible Assets
For the three and six months ended June 30, 2020, the Company recognized an impairment charge of $1,918. The Company updated its impairment assessment at June 30, 2020, 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.
Income (Loss) before Income Taxes
For the three months ended June 30, 2020, the Company reported a loss before income taxes of $(3,085), compared to income of $3,287 reported for the three months ended June 30, 2019. The year-over-year decrease of $6,372 was mainly attributable to: 1) the reduction in gross margin of $1,801 across all segments, as explained previously, but excluding the impact of the Cantabria Agreement; 2) the benefit of the upfront payment and future guaranteed minimum royalties under the Cantabria Agreement of $3,772 in Q2-F2019, net of contract termination fees; 3) the impairment charge of $1,918 taken in the quarter, partly offset by: 1) a reduction in R&D expenses of $273; 2) a reduction in SG&A expenses of $743; 3) a reduction in net interest expense of $93 as a result of the repayment in full of the Company's long-term debt with Knight Therapeutics Inc. (the "Knight Loan") in Q4-F2019 and the interest income accretion recognized on the contract asset related to the Cantabria Agreement.
For the six months ended June 30, 2020, the Company reported a loss before income taxes of $(3,399), compared to income of $3,565 reported for the six months ended June 30, 2019. The year-over-year decrease of $6,964 was mainly attributable to: 1) the reduction in gross margin of $2,359 across all segments, as explained previously, but excluding the impact of the Cantabria Agreement; 2) the benefit of the upfront payment and future guaranteed minimum royalties under the Cantabria Agreement of $3,772, net of contract termination fees recognized in Q2-F2019; 3) the impairment charge of $1,918 taken in the quarter; partly offset by 1) the decrease in SG&A costs of $492; 2) the decrease in R&D costs of $312; 3) a reduction in net interest expense of $214; and 4) the favourable impact of foreign exchange gains year-over-year in the amount of $129.
Cash and Cash Equivalents
Cash and cash equivalents were $9,265 as at June 30, 2020 compared to $11,689 as at June 30, 2019, representing a year-over-year decrease of $2,424. 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:
- EBITDA is defined as earnings (loss) before interest, income taxes, depreciation, and amortization.
- Adjusted EBITDA is defined as earnings (loss) before interest, income taxes, depreciation and amortization, gain on settlement, other income, equity-settled stock-based compensation ("SBC"), gain on debt renegotiations, goodwill and intangible assets impairment, termination and other costs, and foreign currency 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. A reconciliation of EBITDA and adjusted EBITDA to their closest IFRS measure can be found below.
In thousands of CAD
Three months ended June 30,
Six months ended June 30,
Net income (loss)
Depreciation and amortization
Interest expense, net
Deferred income tax expense
Equity-settled stock-based compensation
Foreign currency loss
Intangible asset impairment
Termination fees and other costs
Foreign exchange gain
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, and Brazil, and sold in Canada by the Company.
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.
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.
SOURCE Crescita Therapeutics Inc.