Recro Pharma Reports Financial Results for the Fourth Quarter and Year End 2018

NASDAQ
Record CDMO Performance; 2018 Revenues of $77.3 Million

MALVERN, PA — Recro Pharma, Inc. (NASDAQREPH), a revenue-generating specialty pharmaceutical company focused on therapeutics for the hospital and other acute care settings, reported financial results for the fourth quarter and year ended December 31, 2018.

“As we await the upcoming review decision from the U.S. Food and Drug Administration (FDA) for intravenous (IV) meloxicam, we are building our commercial infrastructure and preparing for our first potential product launch during 2019,” said Gerri Henwood, President and Chief Executive Officer of Recro Pharma. “For the Gainesville CDMO division, we achieved another record year generating 2018 annual revenue of $77.3 million, 8% higher than in 2017.  As we look ahead to 2019, we expect to see continued strong performance from our manufacturing business, providing significant non-dilutive capital.”

Fourth Quarter 2018 and Recent Highlights

  • Received PDUFA Goal Date for IV Meloxicam. The U.S. FDA accepted Recro’s Complete Response through a resubmitted NDA and set a new PDUFA goal date of March 24, 2019 for IV meloxicam for the management of moderate to severe pain.
  • Set New Annual Revenue Record with CDMO Business. Recro’s contract manufacturing business continued its strong performance, generating revenues of $77.3 million for the full year 2018.
  • Signed a Five-Year Manufacturing and Supply Agreement with Novartis. Under the terms of the agreement, effective January 1, 2019, Recro Gainesville will continue to be the exclusive global supplier to Novartis of Ritalin LA and Focalin XR capsules through 2023.  The prior Novartis supply contracts for Ritalin LA and Focalin XR were set to expire in late 2019 and mid-2020, respectively, and provided for two revenue components, product manufacturing revenue and royalty revenue. These agreements were consolidated into one agreement which provides for product manufacturing revenue that is expected to provide similar “total revenue per capsule economics” as did the two prior revenue components combined.
  • Amended IV Meloxicam License Agreement with Alkermes. Recro amended its global licensing agreement with Alkermes Pharma Ireland Limited, reducing the Company’s cash requirements for 2019 by approximately $30 million and extending the IV meloxicam milestone payments over a seven year period.
  • Amended Athyrium Credit Facility. Recro amended its existing credit facility with Athyrium Capital Management, LP.  Under the prior agreement, the Company secured $100 million in credit from Athyrium, of which the Company had drawn $60 million.  The remaining $40 million was no longer available to the Company because funding of those tranches was contingent on receiving FDA approval for IV meloxicam by December 31, 2018.  The amendment restored the availability of the remaining $40 million in debt funding, the first $10 million of which was funded in December 2018.  An additional $15 million will be available upon the FDA’s approval of IV meloxicam, subject to certain other financial conditions being met by Recro, and the final $15 million will be available after Recro demonstrates early sales traction with IV meloxicam.
  • Expanded CDMO Service Capabilities. Recro announced the opening of an expanded 24,000 square foot development and high potency product services facility in Gainesville, GA.  The new site, which is near the existing 97,000 square foot, DEA-licensed CDMO facility, houses expanded development space focused on solving formulation, process and analytical issues for oral dosage forms, as well as providing additional suites for clinical trial supply manufacturing and related services. The expanded facility also has specialized suites dedicated to the development and GMP manufacturing of high potency products.
  • Presentations at Medical Meetings and Peer-Reviewed Publications. IV meloxicam clinical data was presented at a medical meeting and published in a peer-reviewed journal during the fourth quarter.-  In December 2018, a poster, titled “An Ex-vivo Assessment of the Effects of Meloxicam IV on Platelet Function,” was presented at the 72nd PostGraduate Assembly in Anesthesiology (PGA72). The data highlight IV meloxicam’s effect on platelet function and show that IV meloxicam achieved roughly the same closure times (CTs) as untreated controls and numerically shorter CTs than ketorolac.
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–  In November 2018, an article, titled “Analgesic Efficacy and Safety of Intravenous Meloxicam in Subjects with Moderate-to-Severe Pain After Open Abdominal Hysterectomy: A Phase 2 Randomized Clinical Trial,” was published online in Anesthesia & Analgesia. The data describe previously reported results from Recro’s Phase II clinical data for IV meloxicam for the treatment of pain following open abdominal hysterectomy.

Year End 2018 Financial Results

As of December 31, 2018, Recro had cash and cash equivalents of approximately $38.5 million.

Revenues were $77.3 million and $71.8 million for the years ended December 31, 2018 and 2017, respectively. The increase of $5.5 million in 2018 revenue versus 2017 revenue was due to an increase in product sales to various commercial partners and increased profit sharing, including the impact from the new revenue recognition standard, recognized from one of the Company’s commercial partners.

Cost of sales were $43.2 million and $38.2 million for the years ended December 31, 2018 and 2017, respectively, which increased due to product mix and expansion of the Company’s service and development capabilities as well as growth in manufacturing demand.

Research and development expenses were $40.0 million and $33.1 million for the years ended December 31, 2018 and 2017, respectively. The increase of $6.9 million in 2018 primarily resulted from an increase in pre-commercialization manufacturing costs for IV meloxicam which must be expensed until after approval, an increase in development costs for other pipeline products, an increase in Phase IIIb clinical trial costs, and a modest increase in salaries and benefits expense. These increases were partially offset by a decrease in Phase III clinical trial costs and the NDA filing costs in the prior year.

General and administrative expenses were $36.9 million and $25.4 million for the years ended December 31, 2018 and 2017, respectively. The increase of $11.5 million was primarily due to higher commercial team personnel and pre-commercial consulting costs associated with IV meloxicam’s anticipated launch in the first half of the year. These costs were reduced in the second half of the year following the CRL through cost savings initiatives focused on prioritizing the Company’s spend on strategic value and growth drivers.  The increase in general and administrative expense is also attributable to public company costs, including legal fees, business development costs in the Company’s CDMO segment as well as increased professional fees related to the CRL issued by the FDA regarding the Company’s NDA for IV meloxicam.

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Amortization expense was $2.6 million for both the years ended December 31, 2018 and 2017. This expense was solely related to the amortization of Recro’s royalties and contract manufacturing relationships intangible asset over its estimated useful life.

Change in contingent consideration was $8.5 million and $12.8 million for the years ended December 31, 2018 and 2017, respectively. This non-cash expense was related to the change in probability adjusted fair value of the contingent consideration that would be due to Alkermes upon the achievement of certain milestones. The change in contingent consideration is attributed to the change in estimated timing of potential FDA approval and the amendment of the milestone payments to Alkermes.

Interest expense, net, was $8.2 million and $11.7 million during the years ended December 31, 2018 and 2017, respectively. The decrease in interest expense, net, was due to the refinancing of the Company’s prior credit agreement with OrbiMed Royalty Opportunities (OrbiMed) in 2017 which resulted in a one-time charge of approximately $6.8 million for fees related to early extinguishment of debt and the non-cash write-off of the related deferred financing costs offset by an increase in principal balance under the new Athyrium Credit Facility resulting in increased interest expense.

Income tax expense for the year ended December 31, 2018 was $17.4 million primarily due to recording of a onetime, non-cash $28.8 million income tax valuation allowance against the Company’s domestic deferred tax assets. The recording of a valuation allowance in the fourth quarter of 2018 was driven by the amendment of the milestone payments due to Alkermes coupled with the Company’s international tax structure and history of earnings in the United States. Income tax benefit was $1.9 million during the year ended December 31, 2017. As a result of the Tax Cuts and Jobs Act of 2017, included within income tax benefit for the year ended December 31, 2017 was a non-cash adjustment of $7.9 million for the remeasurement of the deferred tax items using the new 21% statutory tax rate.

For the year ended December 31, 2018, Recro reported a net loss of $79.7 million, or $3.90 diluted net loss per share, compared to a net loss of $50.1 million, or $2.63 diluted net loss per share, for the comparable period in 2017. Adjusted net loss* for the year ended December 31, 2018 was $50.9 million excluding the $28.8 million impact of recording the onetime, non-cash income tax valuation allowance mentioned above. Adjusted net loss per share* for the year ended December 31, 2018 was $2.49.  Adjusted net loss* for the year ended December 31, 2017 was $38.0 million excluding the $12.1 million tax reform adjustment and tax effected debt charges. Adjusted net loss per share* for the year ended December 31, 2017 was $1.99.

Fourth Quarter 2018 Financial Results

Revenues were $17.8 million and $19.0 million for the three months ended December 31, 2018 and 2017, respectively. The decrease of $1.2 million in revenue was primarily due to lower profit sharing, including the impact from the new revenue recognition standard, as well as reduced royalties. These reductions were offset by increased product sales.

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Cost of sales were $12.1 million and $10.4 million for the three months ended December 31, 2018 and 2017, respectively. The increase is due to product mix and expansion of the Company’s service and development capabilities as well as growth in manufacturing demand.

Research and development expenses were $10.0 million and $9.0 million for the three months ended December 31, 2018 and 2017, respectively. The increase of $1.0 million was primarily due to an increase in pre-commercialization manufacturing costs for IV meloxicam, an increase in Phase IIIb clinical trials and related costs and an increase in development costs for other pipeline products. These increases were partially offset by a decrease in salaries and benefits expense and Phase III clinical trial costs.

General and administrative expenses were $7.4 million and $8.4 million for the three months ended December 31, 2018 and 2017, respectively. The decrease of $1.0 million was primarily due to a decrease in personnel costs.

Interest expense, net, was $2.1 million and $8.3 million during the three months ended December 31, 2018 and 2017. The decrease was primarily due to the November 2017 refinancing of the Company’s prior credit agreement which resulted in a onetime charge totaling approximately $6.8 million for fees related to early extinguishment of debt and the non-cash write-off of the related deferred financing costs.

Income tax expense was $24.9 million and $2.9 million for the three months ended December 31, 2018 and 2017, respectively, related exclusively to the Company’s United States operations. The increase was primarily due to recording a onetime non-cash $28.8 million valuation allowance against the Company’s domestic deferred tax assets, as further described above.

For the three months ended December 31, 2018, Recro reported a net loss of $41.3 million, or $1.92 diluted net loss per share, compared to a net loss of $24.1 million, or $1.26 diluted net loss per share, for the comparable period in 2017.  Adjusted net loss* for the three months ended December 31, 2018 was $12.5 million excluding the $28.8 million impact of recording the onetime, non-cash income tax valuation allowance mentioned above. Adjusted net loss per share* for the three months ended December 31, 2018 was $0.58. Adjusted net loss* for the three months ended December 31, 2017 was $12.0 million excluding the $12.1 million tax reform adjustment and tax effected debt charges. Adjusted net loss per share* for the three months ended December 31, 2017 was $0.63.

Source: Recro Pharma, Inc., 490 Lapp Road, Malvern PA 19355
* “Adjusted net loss” and “adjusted net loss per share” are non-GAAP financial measures (see “Non-GAAP Financial Measures”).

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