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Pediapharm Announces Closing of Transformative Acquisitions, Diversifying and Expanding the Platform for Future Growth

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES. FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF UNITED STATES SECURITIES LAW.

MONTREAL, Oct. 16, 2018 — Pediapharm Inc. (“Pediapharm“) (TSXV: PDP, OTCQB: PDDPF) is pleased to announce the closing of its previously announced acquisitions of two speciality pharmaceutical companies, transforming the company through increased portfolio diversification, expanded therapeutic areas and established commercial infrastructure in the U.S. market.

Sylvain Chretien Chief Executive Officer of Pediapharm and Ken d’Entremont, Chief Executive Officer of Medexus, together stated “We are pleased to have collaborated in this transformative deal for specialty pharma in North America. The combination of the three companies brings increased scale with strong organic growth from existing product portfolios and a solid presence in both Paediatrics and Rheumatology.

This bold new company is well capitalized to fund future development. A focused management team along with an experienced board of directors are in place to help guide growth for success. We look forward to working together in this exciting new organization.”

THE ACQUISITIONS

Pediapharm completed the acquisition of all of the issued and outstanding shares of Medexus Inc. (“Medexus“), a Canadian pharmaceutical innovator with strategic partnerships in key international markets (the “Medexus Acquisition“). The total consideration paid by Pediapharm for the Medexus Acquisition is approximately CDN$23 million, which was satisfied through the issuance of 67,646,009 common shares of Pediapharm (the “Common Shares“) to former holders of Medexus shares, at a deemed issue price of CDN$0.34 per Common Share.

Pediapharm also completed the acquisition of all of the issued and outstanding shares Medac Pharma, Inc. (“Medac Pharma“), a privately held specialty pharmaceutical company focusing primarily in the area of rheumatology in the United States, from medac Gesellschaft für klinische Spezialpräparate m.b.H. (“medac GmbH“) (the “Medac Pharma Acquisition” and, together with the Medexus Acquisition, the “Acquisitions“). The total consideration payable by Pediapharm for the Medac Pharma Acquisition is up to U.S. $50 million, of which a cash payment of U.S. $13.1 million was paid on closing, together with the issuance of 7,260,235 units of Pediapharm (the “Consideration Units“) with a value of approximately U.S. $1.9 million with an issue price of CDN$0.34 per Consideration Unit. Each Consideration Unit consists of one Common Share and one half of one Common Share purchase warrant (each such full warrant being exercisable into one Common Share for a period of five years at an exercise price of CDN$0.63 per share). A contingent cash payment of U.S. $5 million and annual payments in an amount equal to 7.5% of the aggregate consolidated EBITDA of Pediapharm, subject to certain agreed-upon adjustments and until such time as an aggregate of U.S. $30 million in annual payments have been made, are also payable in connection with the Medac Pharma Acquisition, all as more particularly described in Pediapharm’s press release dated September 6, 2018.

Concurrent with closing of the Medac Pharma Acquisition, medac GmbH, Pediapharm and Medac Pharma entered into a manufacturing and supply agreement (the “Medac Supply Agreement“) for an initial term of 12 years from the completion of the Medac Pharma Acquisition, which Medac Supply Agreement will provide for the continued supply of products by medac GmbH to Pediapharm for sale in the United States by Pediapharm. In addition, the existing supply agreement between medac GmbH and Medexus was extended, on its existing financial terms, such that it expires 12 years from the date of the completion of the Medac Pharma Acquisition.

CONVERSION OF SUBSCRIPTION RECEIPTS

In connection with the completion of the Acquisitions, Pediapharm has satisfied all of the conditions necessary for the subscription receipts of Pediapharm (the “Subscription Receipts”) issued pursuant to Pediapharm’s brokered offering co-led by Cormark Securities Inc. and Mackie Research Capital Corporation, and non-brokered private placement offering, as described in Pediapharm’s press releases dated September 6, 2018 and October 11, 2018, to automatically convert into an aggregate of: (i) 58,676,397 units (“Units“), consisting of one Common Share (“Common Share“) and one half of one Common Share purchase warrant (each such full warrant being exercisable into one Common Share for a period of five years at an exercise price of CDN$0.63 per share); and (ii) $42 million principal amount of convertible debentures (“Convertible Debentures being convertible into units (“Conversion Units”) consisting of one (1) Common Share and one half of one Common Share purchase warrant (each such full warrant being exercisable into one Common Share for a period of five years at an exercise price of CDN$0.63 per share) at a conversion price of CDN$0.42 per Conversion Unit.

Aggregate net proceeds of approximately CDN$58.46 million which had been held in escrow in accordance with the terms of the Subscription Receipts, have been released to Pediapharm. Following completion of the Acquisitions and the conversion of the Subscription Receipts, Pediapharm has an aggregate of 221,193,877 Common Shares outstanding.

PEDIAPHARM BOARD, MANAGEMENT AND CORPORATE MATTERS

Upon completion of the Acquisitions, the board of directors of Pediapharm (the “Board“) has been reconstituted to consist of seven directors, comprised of Pierre Lapalme, Sylvain Chretien, Michael Mueller, Benoit Gravel, Ken d’Entremont, Stephen Nelson and Peter van der Velden. Ken d’Entremont, the Founder, President and Chief Executive Officer of Medexus, has also been appointed the Chief Operating Officer of Pediapharm.

Pediapharm expects to convene and hold a meeting of Pediapharm’s shareholders in December 2018 to obtain the approval of Pediapharm’s shareholders for: (i) a long-term incentive plan of Pediapharm designed to incentivize directors, officers, employees and consultants, and to align their interests with the long-term interests of Pediapharm’s shareholders; (ii) the consolidation of the Common Shares; and (iii) the change of Pediapharm’s name. Further details regarding the proposed longterm incentive plan, share consolidation and name change will be included in the meeting materials to be provided to Pediapharm’s shareholders in connection with such meeting.

Bloom Burton Securities Inc. advised and assisted Pediapharm’s Board in its evaluation of the Acquisitions.

The Acquisitions are subject to the final approval of the TSX Venture Exchange.

About Pediapharm

Pediapharm is the only Canadian specialty pharmaceutical company dedicated to serving the needs of the pediatric community. Its mission is to bring to the Canadian market the latest innovative pediatric products with the objective to improve the health and the well-being of children in Canada. Since its debut in 2008, Pediapharm has entered into numerous commercial agreements with partners from Canada and other countries around the world. Pediapharm’s innovative product portfolio includes NYDA®, a breakthrough treatment for head lice; Relaxa™, an osmotic laxative used to treat constipation; EpiCeram®, a non-steroid emulsion for eczema; naproxen suspension, indicated to treat pain and inflammation due to various conditions, including Juvenile Idiopathic Arthritis; Rupall™, an innovative new allergy medication with a unique mode of action; Otixal™, the first and only antibiotic and steroid combination ear drop available in single, sterile, preservative-free and unitdose packaging; and Cuvposa™, for chronic severe drooling, a condition affecting a significant proportion of cerebral palsy patients.

Medexus, a direct subsidiary of Pediapharm, is a Canadian specialty pharmaceutical company focused on the licensing, registration, marketing, sales and distribution of innovative pharmaceutical products in Canada, with strategic partnerships in key international markets. Medexus has a strong position in the Canadian marketplace and focuses on key growth areas with an emphasis on rheumatology as well as women’s health and dermatology. The healthcare solutions offered by Medexus include: Metoject®, Oralvisc®, Tricovel®, Multi-Gyn®, Calcia®, IronOne®, Monoderma A-C-E-M™, Allergoff® and Triamcinolone Hexacetonide.

Medac Pharma, an indirect subsidiary of Pediapharm, is a specialty pharmaceutical company focusing primarily in the area of rheumatology in the United States through a solid implemented commercial infrastructure. The leading product of Medac Pharma is Rasuvo, an enhanced delivery of methotrexate (auto-pen) to treat rheumatoid arthritis.

This press release is not an offer of the securities for sale in the United States. The securities may not be offered or sold in the United States absent registration or an exemption from registration. The securities will not be publicly offered in the United States. The securities have not been and will not be registered under the U.S. Securities Act, or any state securities laws.

For more information, please contact:

Sylvain Chretien, President and Chief Executive Officer
Pediapharm Inc.
Tel.: 514-762-2626 ext. 201
E-mail: sylvain.chretien@pedia-pharm.com

Roland Boivin, Chief Financial Officer
Pediapharm Inc.
Tel.: 514-762-2626 ext. 202
E-mail: roland.boivin@pedia-pharm.com

Ken d’Entremont, Chief Operating Officer
Pediapharm Inc.
Tel.: 905-676-0003
E-mail: ken.dentremont@medexus.ca

Frank Candido
Direct Financial Strategies and Communication Inc.
Tel. 514-969-5530
E-mail: directmtl@gmail.com

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

READER ADVISORIES

Forward Looking Statements

This press release contains “forward-looking information” within the meaning of applicable securities legislation. Forward looking information includes, but is not limited to, statements with respect to Pediapharm’s future business operation, expectations of gross sales, the opinions or beliefs of management and future business goals, statements regarding the receipt of regulatory approvals and management’s expectations with respect to the future performance of the business of Medexus and Medac Pharma, respectively, acquired as a result of the Acquisitions. All statements, other than of historical fact, that address activities, events or developments that Pediapharm believes, expects or anticipates will or may occur in the future (including, without limitation, statements regarding potential acquisitions and financings) are forward-looking statements. Forward-looking statements are generally identifiable by use of the words “may”, “will”, “should”, “continue”, “expect”, “anticipate”, “estimate”, “believe”, “intend”, “plan” or “project” or the negative of these words or other variations on these words or comparable terminology. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond Pediapharm’s ability to control or predict, that may cause the actual results of Pediapharm to differ materially from those discussed in the forward-looking statements. Factors that could cause actual results or events to differ materially from current expectations include, among other things, without limitation, failure of the parties to satisfy the conditions necessary to obtain regulatory approvals, failure to realize the expected benefits of the Acquisitions, the risk that the operations of Pediapharm, Medac Pharma and Medexus will not be integrated successfully, the failure to obtain sufficient financing to execute Pediapharm’s business plan; competition; regulation and anticipated and unanticipated costs and delays, and other risks disclosed in Pediapharm’s public disclosure record on file with the relevant securities regulatory authorities. Although Pediapharm believes that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Pediapharm can give no assurance that they will prove to be correct. Since forward-looking information addresses future events and conditions, by its very nature they involve inherent risks and uncertainties. Pediapharm’s actual results, performance or achievement could differ materially from those expressed in, or implied by, the forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits that Pediapharm will derive therefrom. Management has included the above summary of assumptions and risks related to forward-looking information provided in this press release in order to provide securityholders with a more complete perspective on Pediapharm’s future operations and such information may not be appropriate for other purposes. Readers should not place undue reliance on forward-looking statements. Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect Pediapharm’s operations or financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). The forward-looking statements included in this news release are made as of the date of this news release and Pediapharm does not undertake an obligation to publicly update such forward-looking statements to reflect new information, subsequent events or otherwise unless required by applicable securities legislation.