Mr. Sylvain Chretien reports

PEDIAPHARM ANNOUNCES SECOND QUARTER FINANCIAL RESULTS; REVENUES INCREASED BY 58% VS SAME PERIOD LAST YEAR

Pediapharm Inc. has filed its second quarter unaudited financial results ended Sept. 30, 2015. (All dollar amounts are expressed in Canadian currency, and results are reported in accordance with international financial reporting standard accounting principles.)

Highlights for the three-month period ended Sept. 30, 2015:

• The company's total revenue increased by 58 per cent versus the same period in 2014, including an increase of 73 per cent from sales of Pediapharm-branded products (versus revenue from commissions). When comparing with the three-month period ended June 30, 2015, total revenue has increased by 143 per cent.
• NYDA's sales performance continued to be very solid. For the three-month period ended Sept. 30, 2015, NYDA's revenue, which reached over $1.4-million, more than tripled compared with the three-month period ended June 30, 2015 ($464,222). Compared with the three-month period ended Sept. 30, 2014, NYDA's revenue increased by 58 per cent. This performance confirms once again the excellent growth momentum obtained by NYDA since it was launched in Canada and, as mentioned previously, reflects the seasonality of NYDA. Management estimates that NYDA has the potential to reach $3.2-million in its current fiscal year.
• The company has entered in discussion with numerous potential partners for Naproxen Suspension in the United States. The objective is to finalize an agreement by the end of 2015.
• On July 24, 2015, the company submitted to the Canadian health authorities its regulatory dossier of rupatadine, a novel generation of antihistamine to treat the symptoms of allergy and urticarial in both adults and children. Rupatadine has a unique dual activity by blocking both histamine H1 and platelet-activating factor (PAF) receptors, thus, providing additional anti-allergic benefits to patients. It comes in a once-daily formulation and is also available in the form of suspension (liquid) for children. The Canadian second-generation antihistamine market is estimated to be $105-million, of which $17-million is from products with a prescription status, which are growing at a rate of approximately 15 per cent. The entire antihistamine market was approximately $120-million in 2013 (IMS data, 2013).

Recent highlights:

• On Nov. 16, 2015, the company submitted to the Canadian health authorities its regulatory dossier of Otixal, a novel patented formulation of Ciprofloxacin 0.3-per-cent otic solution and fluocinolone acetonide 0.025-per-cent otic solution for the treatment of both acute otitis media in patients with tympanostomy tubes (AOMT) and acute otitis external (swimmer's ear).
• On Nov. 20, 2015, the company attended a meeting with scientific advisers as part of the request for reconsideration process for the notice of deficiency, withdrawal letter, issued by Health Canada in May, 2015, regarding the new drug submission for Easyhaler Budesonide. Pursuant to the rules governing the request for reconsideration, representatives from Pediapharm and Health Canada presented their respective arguments to the external committee. Further information on the request for reconsideration process can be found on Health Canada's website.

"The overall sales performance in our second quarter, led by our signature product NYDA, demonstrated once again our continued commercial success with our own branded products," stated Sylvain Chretien, president and chief executive officer of Pediapharm.

He added: "At the same time, we have made a lot of progress regarding the execution of the five agreements signed during our last fiscal year and, as such, are in a position whereby most of the regulatory and filing investments have been done. We have also continued to assess potential product acquisitions that would generate short-term cash flow and are remaining very focused and disciplined in making sure there are synergies with our existing infrastructure."

Mr. Chretien concluded with the following: "The next 12 to 15 months will be very busy for us with the potential launches of four new innovative products and the announcements of potential upcoming transactions. I remain very confident in our ability to keep executing our plan, especially with our demonstrated commercial know-how, as well as our solid infrastructure and management team."

The company's focus remains to execute its commercial plan with existing products, such as NYDA, a revolutionary treatment indicated for eradication of head lice and its eggs. NYDA reached over $2-million in revenue in fiscal 2015, is expected to reach $3.2-million in fiscal 2016 and has the potential to achieve annual peak revenues of $6-million to $8-million by fiscal 2018 (IMS data and management's estimate).

Pediapharm has a product pipeline of secured exclusive agreements, which management believes will enable the company to obtain its corporate annual revenue goal of reaching between $35-million and $40-million within the next five to six years. This projected peak sales forecast is based on using IMS data and management's estimate in the market share to be captured for each of the company's products. As described below, projected annual peak sales to be generated from existing licences/products that have not yet been launched and/or require Health Canada approval are estimated at $35-million (IMS data and management's estimate). The company intends on filing one additional product over the next few months for estimated Health Canada approvals before December, 2016.

Now that Pediapharm has positioned itself with a strong pipeline, 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. The key objective is to generate profitability in a timely fashion while pursuing the regulatory process of the agreements signed in 2014. In parallel, Pediapharm will still assess exclusive licensing agreements (commonly known as in-licensing).

Furthermore, before the end of 2015, the company intends to complete a transaction with a U.S. commercial partner for the selling and marketing of its first product acquisition in the United States, namely the Pediapharm Naproxen Suspension.

Pediapharm believes that with this transaction, the company will reach profitability more rapidly.

With the excellent sales momentum of its current marketed products portfolio, including NYDA, the company continues to make positive steps toward generating positive cash flow. The recent launch of Pediapharm Naproxen Suspension in Canada and the expected transaction of the Pediapharm Naproxen Suspension in the U.S. through a partner, as well as the potential launch of Easyhaler Budesonide in 2016 assuming Health Canada's approval, will positively impact revenue and profitability for years to come. In parallel, the company is in the process of assessing potential product acquisitions and strives to add more products to its portfolio within this fiscal year. 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 financing and flexibility.

Review of operating results for the period ended Sept. 30, 2015

For the three months ended Sept. 30, 2015, revenue reached $1,471,734 compared with revenue of $928,257 in the three months ended Sept. 30, 2014, which represents a 58-per-cent increase. Revenue from sales of Pediapharm-branded products increased by $618,452 due to the very strong revenue growth from NYDA, while revenue from commissions decreased by $74,975.

For the three months ended Sept. 30, 2015, selling and administrative expenses were $1,688,949 (2014: $1,789,763).

General administration expenses have decreased by $54,780 while business development and regulatory affairs expenses have increased by $17,647. The main reasons for this increase are the additional efforts associated with the five agreements signed in fiscal 2015.

The operating loss for the three months ended Sept. 30, 2015, was $760,755 compared with $1,193,712 in the three months ended Sept. 30, 2014. The 58-per-cent increase in revenue is the main reason for the decrease in operating loss.

The loss and comprehensive loss for the three months ended Sept. 30, 2015, were $954,011 compared with $1,186,937 in the three months ended Sept. 30, 2014. The three months ended Sept. 30, 2015, was negatively impacted by $211,931 in finance costs as a result of the March 31, 2015, private placement of secured, convertible debentures of the company and share purchase warrants of the company for aggregate gross proceeds of $5.5-million.

                                      FINANCIAL HIGHLIGHTS

                                    Three months ended                     Six months ended
                              Sept. 30, 2015     Sept. 30, 2014     Sept. 30, 2015     Sept. 30, 2014

Revenue from products             $1,455,459           $837,007         $1,997,628         $1,261,992
Revenue from commissions              16,275             91,250             79,748            545,000
Total revenue                      1,471,734            928,257          2,077,376          1,806,992
Gross profit                         954,480            612,128          1,348,208          1,330,886
Selling and administrative 
expenses                           1,688,949          1,789,763          3,452,043          3,326,228
Operating (loss)                    (760,755)        (1,193,712)        (2,155,004)        (2,024,638)
Net (loss)                          (954,011)        (1,186,937)        (2,548,657)        (1,999,643)
Cash flow from (used in) 
operating activities              (1,133,694)          (821,947)        (2,470,352)        (2,392,428)
Cash flow from (used in) 
investing activities                (284,129)          (111,145)          (287,968)          (290,903)
Cash flow from (used in) 
financing activities                  (1,064)                --             69,902                 --

We seek Safe Harbor.