Mr. Serge Verreault reports

CRESCITA REPORTS THIRD QUARTER 2023 RESULTS

Crescita Therapeutics Inc. has released its financial results for the third quarter ended Sept. 30, 2023 (Q3 2023). All amounts presented are in thousands of Canadian dollars unless otherwise noted.

Highlights

For the three and nine months ended Sept. 30, 2023, and up to the date of this news release

Financial -- Q3 2023 versus Q3 2022:

• Revenue was $3,033, compared with $6,032, down $2,999.
• Gross profit was $1,499, compared with $2,938, down $1,439.
• Operating expenses were $2,880, compared with $2,805, up $75.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (1) was negative $988, compared with $512, down $1,500.
• Ending cash was $10,021, down $205 for the quarter.

Operational:

• Termination of agreement with Taro Pharmaceuticals Inc.: On Oct. 25, 2023, Taro delivered a notice to terminate the development and commercialization licence agreement for Pliaglis in the United States market. The company's final entitlement to the annual guaranteed minimum royalties in the amount of $1.0-million (U.S.) will be recognized in Q4 2023, with payment expected in Q2 2024.
• Update on manufacturing segment: Recent changes in senior management within the company's largest CMO customer have caused uncertainty in Crescita's order pipeline. As previously disclosed, certain manufacturing orders initially scheduled to be delivered in the second half of fiscal 2023 have been deferred to 2024. Crescita's customer's new management team indicates that it is reassessing commercial options for the company's products in key markets, which may negatively impact Crescita's business with them in the future. Manufacturing revenue is expected to be materially lower in the fourth quarter and for the full 2023 fiscal year, compared with the same periods of 2022. The impact on future sales to this customer beyond 2023 is uncertain at this time.

"Our results were significantly impacted by headwinds in our manufacturing segment as a result of a major customer's decision to defer certain purchase orders into 2024. Our customer is now reassessing its commercial options for the product in its target markets," commented Serge Verreault, president and chief executive officer of Crescita.

Mr. Verreault added: "The termination of the Taro licence agreement for Pliaglis in the U.S. will have an impact on 2024 financial results, but it also provides an opportunity to secure a new partner for the product and explore other distribution alternatives given that Taro has not generated commercial sales of Pliaglis since Q3 2020. Our skincare business continues to grow with a 44-per-cent increase over last year, and Art Filler is gaining momentum through higher adoption by Canadian physicians, in part due to the positive impact and influence of KOLs."

Corporate developments

Normal course issuer bid

In Q3 2023, the Toronto Stock Exchange approved the company's proposed normal course issuer bid (NCIB) to purchase up to a maximum of 1,821,616 common shares for cancellation. The NCIB commenced on Aug. 31, 2023, and is expected to terminate on Aug. 30, 2024, or such earlier date as the company completes its purchases pursuant to the NCIB or provides notice of termination. The company has also entered into an automatic securities purchase plan in connection with its NCIB. During the quarter ended Sept. 30, 2023, 355,110 common shares were repurchased for cancellation for cash consideration of $240.

Relaunch of Alyria as a direct-to-consumer brand

Crescita relaunched Alyria as a direct-to-consumer medical-grade dermocosmetic brand in the Canadian skincare market in Q1 2023, following a complete rebranding and various product reformulations. In Q2 2023, the brand was launched in retail outlets of Familiprix, a Quebec-based chain of independently owned pharmacies. Alyria is primarily targeted at millennials and marketed and sold on-line in Canada through the Amazon and Alyria Skincare websites. The relaunch of Alyria strengthens Crescita's omnichannel expansion and provides the opportunity to engage with a new consumer group.

The launch of Art Filler

In Q1 2023, Crescita launched the Art Filler injectables in the Canadian medical aesthetic market through its new dedicated sales force. Art Filler is an exclusive collection of dermal fillers made of hyaluronic acid (HA), designed to smooth and fill in wrinkles, and create or restore the volumes and contours of the face. Crescita distributes the fillers under an exclusive Canadian distribution and promotion agreement with Laboratoires Fillmed.

Q3 2023 summary financial results

Select financial information is outlined in this news release and should be read in conjunction with Crescita's condensed consolidated interim financial statements and related management's discussion and analysis (MD&A) for the three and nine months ended Sept. 30, 2023, which are available on SEDAR+ and on Crescita's website.

Revenue

Crescita has three reportable segments: (1) commercial skincare, which manufactures and sells Crescita's branded non-prescription skincare products for the Canadian and international markets, and also commercializes Pliaglis, NCTF, Art Filler and Obagi Medical in Canada; (2) licensing and royalties, which primarily generates revenue from licensing Crescita's intellectual property related to Pliaglis or its transdermal delivery technologies; and (3) manufacturing and services, which generates revenue from contract manufacturing and product development services.

For the three and nine months ended Sept. 30, 2023, total revenue was $3,033 and $12,797, compared with $6,032 and $17,495 for the three and nine months ended Sept. 30, 2022. The net year-over-year decreases of $2,999 and $4,698 were driven by the manufacturing segment, where the revenue decrease for the quarter was mainly due to the deferral of orders previously scheduled to be delivered in Q3 2023 into fiscal 2024, while the year-to-date decrease was also impacted by the difference in the timing and value of orders, including the fulfilment and completion of a previously announced purchase order of approximately $7.0-million in 2022. During the same periods, Crescita experienced continued growth in commercial skincare from branded product sales across all channels, mainly driven by new product launches and promotions, including the launch of Alyria in select retail outlets in the province of Quebec and Art Filler.

Licensing revenue was $163 and $483 for the three and nine months ended Sept. 30, 2023, compared with $92 and $319 for the comparable three and nine months of 2022. Licensing revenue of $163 and $483 for the three and nine months ended Sept. 30, 2023, reflected royalties above the annual contractual minimum under Crescita's licensing agreement with Cantabria Labs Inc. and product sales from supplying Pliaglis under Crescita's licensing agreement with Egis Pharmaceuticals PLC. In addition, year-to-date licensing revenue included a regulatory milestone payment under Crescita's licensing agreement with Croma Pharma GmbH. Licensing revenue of $92 and $319 for the comparative periods of the prior year mainly reflected royalties above the annual contractual minimum under the Cantabria agreement.

Gross profit and gross margin

For the three months ended Sept. 30, 2023, gross profit was $1,499, representing a gross margin of 49.4 per cent, compared with $2,938 and 48.7 per cent, respectively, for the three months ended Sept. 30, 2022. The net decrease in gross profit of $1,439 was mainly due to lower high-margin manufacturing segment revenue.

For the nine months ended Sept. 30, 2023, gross profit was $7,304, representing a gross margin of 57.1 per cent, compared with $9,297 and 53.1 per cent, respectively, for the nine months ended Sept. 30, 2022. The net decrease in gross profit of $1,993 resulted primarily from lower high-margin manufacturing segment revenue, while the gross margin increase of 4.0 per cent was mainly due to favourable product and channel mix, and to a lesser extent, the favourable impact of cost savings in the first half of 2023.

Operating expenses

For the three and nine months ended Sept. 30, 2023, total operating expenses were $2,880 and $9,147, compared with $2,805 and $9,340, respectively, for the three and nine months ended Sept. 30, 2022. The year-to-date net decrease of $193 was mainly due to lower expenses related to head count, partly offset by higher advertising and promotion spend.

Cash and cash equivalents

Cash and cash equivalents were $10,021 at Sept. 30, 2023, reflecting a decrease of $205 for the quarter.

(1) Non-IFRS (international financial reporting standards) financial measures

Crescita reports its financial results in accordance with international financial reporting standards. However, the company uses certain non-IFRS financial measures to assess its performance. Crescita believes these to be useful to management, investors and other financial stakeholders in assessing its performance. The non-IFRS measures used in this news release do not have any standardized meaning prescribed by IFRS and are therefore not comparable with 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 of property, plant and equipment, and amortization of right-of-use asset and intangible assets. Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation of property, plant and equipment, and amortization of right-of-use asset and intangible assets, share of (profit) loss of associates, fair value (gains) losses, 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. An attached table provides a reconciliation of EBITDA and adjusted EBITDA to their closest IFRS measures.

Caution concerning limitations of summary financial results news release

This summary earnings news 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, the MD&A, and the latest annual information form (AIF), which can be found on the company's profile on SEDAR+.

About Crescita Therapeutics Inc.

Crescita is a growth-oriented, innovation-driven Canadian commercial dermatology company with in-house R&D (research and development) and manufacturing capabilities. The company offers a portfolio of high-quality, science-based non-prescription skincare products and early-to-commercial-stage prescription products. It also owns multiple proprietary transdermal delivery platforms that support the development of patented formulations to facilitate the delivery of active ingredients into or through the skin.

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