Recro Pharma Reports Third Quarter 2019 Financial Results

Recro Pharma
Company Remains on Track to Execute Spin Out of Acute Care Business Segment During the Fourth Quarter of 2019

MALVERN, PA — Recro Pharma, Inc. (NASDAQ: REPH), a pharmaceutical company with a high-performing, revenue-generating contract development and manufacturing (CDMO) segment and an Acute Care segment, reported financial results for the three and nine months ended September 30, 2019.

“The CDMO business has continued to deliver record results, generating $81.6 million in year to date revenues, a 37% increase over the comparable nine-month period in 2018, and surpassing our full year 2018 revenues in just nine months,” said Gerri Henwood, President and Chief Executive Officer of Recro Pharma.  “We achieved consolidated operating profitability earlier than expected and generated $4.8 million in cash from operations during the third quarter.  We are proud of this performance and of the strong year over year growth and are raising our full year CDMO revenue guidance to $98-100 million.”

“As we look ahead to the remainder of 2019 and into 2020, we look forward to several important milestones in both business segments.  In the CDMO segment, we look forward to growing our revenues and customer base in 2020.  In the Acute Care segment, where we were recently granted an appeal for the intravenous (IV) meloxicam New Drug Application (NDA), we are preparing a comprehensive response to the U.S. Food and Drug Administration (FDA), with the goal of advancing the IV meloxicam opportunity.  We also remain on track to complete the spin out of this business segment into a new entity named Baudax Bio during the fourth quarter,” concluded Ms. Henwood.

Third Quarter 2019 and Recent Highlights

  • Strong Gainesville Manufacturing Performance.  Recro’s contract manufacturing business continued to perform well with revenues of $25.3 million for the third quarter of 2019, a 38% increase over the $18.3 million generated in the third quarter of 2018.  CDMO operating income, CDMO Adjusted EBITDA* and CDMO operating income, as adjusted*, for the nine months ended September 30, 2019 were $37.3 million, $39.4 million and $31.9 million, respectively, which reflect increases of 80%, 68% and 87%, respectively, compared to the same nine-month period in 2018.
  • Company Achieved Operating Profitability.  During the third quarter of 2019, Recro achieved consolidated operating profitability earlier than expected and generated $4.8 million in cash from operations.  The Company expects to remain cash flow positive for the second half of 2019 (excluding the impact from any strategic transactions).
  • FDA Granted Appeal for IV Meloxicam New Drug Application.  In late October, Recro announced that it had received a written decision from the FDA granting its appeal of the Complete Response Letter relating to the NDA seeking approval for IV meloxicam.  The Company is now in the process of preparing a comprehensive response to the FDA that includes proposed labeling and certain other information.
  • Board of Directors Approves Separation of Acute Care Segment.  In early November, Recro’s Board of Directors approved the planned spin out of the Acute Care business segment, which will be known as Baudax Bio, Inc. and declared a special dividend distribution of all outstanding shares of Baudax Bio common stock.  For every two and one half (2.5) shares of Recro common stock held of record as of the close of business on November 15, 2019, Recro shareholders will receive one (1) share of Baudax Bio common stock.  The special dividend distribution is expected to be paid on November 21, 2019.
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Financial Results for the Third Quarter 2019

As of September 30, 2019, Recro had cash and cash equivalents of $37.9 million.

Revenues and cost of sales were $25.3 million and $11.0 million, respectively, for the three months ended September 30, 2019, compared to $18.3 million and $8.5 million for the three months ended September 30, 2018. The increase of $7.0 million in revenue was due to increased royalties recognized from one of the Company’s commercial partners and an increase in product sales to various of their commercial partners. Cost of sales increased primarily due to expansion of their service and development capabilities as well as growth in manufacturing demand, which was partially offset by operating efficiencies gained as a result of higher production volumes.

Research and development expenses for the three months ended September 30, 2019 were $1.8 million, compared to $11.3 million for the three months ended September 30, 2018. The decrease of $9.5 million was primarily due to a decrease in pre-commercialization manufacturing and clinical costs for IV meloxicam, shift of focus of the Company’s CDMO formulation and development capabilities to cost of sales activities, a decrease in development costs for other pipeline products and a decrease in personnel costs.

General and administrative expenses for the three months ended September 30, 2019 decreased $0.1 million to $6.9 million, compared to $7.0 million for the same period in 2018.

Change in contingent consideration valuation for the three months ended September 30, 2019 was $3.9 million, compared to $4.1 million for the three months ended September 30, 2018. This non-cash expense was related to the change in the probability adjusted fair value of the contingent consideration that would be due to Alkermes upon passage of time or the achievement of certain milestones.

Amortization expense was $0.6 million for each of the three months ended September 30, 2019 and 2018.  This expense was solely related to the amortization of Recro’s royalties and contract manufacturing relationships intangible asset over its estimated useful life.

Interest expense, net, was $5.1 million and $2.1 million for the three months ended September 30, 2019 and 2018, respectively. The increase was primarily due to the higher principal balance on their Athyrium senior secured term loan and amortization of the related financing costs.

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The Company records a full valuation allowance against its deferred tax assets therefore, there was no income tax benefit for the three months ended September 30, 2019. For the three months ended September 30, 2018, the income tax benefit was $2.4 million, which was recorded prior to the recording of the full valuation allowance for United States operations in the fourth quarter of 2018.

For the three months ended September 30, 2019, Recro reported a net loss of $4.3 million, or $0.19 per share, compared to a net loss of $13.3 million, or $0.64 per share, for the comparable period in 2018.

Financial Results for the Nine Months Ended September 30, 2019

Revenues and cost of sales were $81.6 million and $39.5 million, respectively for the nine months ended September 30, 2019, compared to $59.6 million and $31.0 million for the nine months ended September 30, 2018. The increase of $22.0 million in revenue was due to increased royalties recognized from one of the Company’s commercial partners and an increase in product sales to various of their commercial partners. Cost of sales increased primarily due to expansion of their service and development capabilities as well as growth in manufacturing demand, which was partially offset by operating efficiencies gained as a result of higher production volumes.

Research and development expenses for the nine months ended September 30, 2019 were $18.6 million, compared to $29.9 million for the nine months ended September 30, 2018. Excluding $2.8 million of costs associated with the strategic restructuring initiative recorded in the nine months ended September 30, 2019, the decrease of $14.1 million was primarily due to a decrease in pre-commercialization manufacturing and clinical costs for IV meloxicam, a decrease in personnel costs, the shift of focus of the Company’s CDMO formulation and development capabilities to cost of sales activities, and a decrease in development costs for other pipeline products.

General and administrative expenses for the nine months ended September 30, 2019 were $31.1 million, compared to $29.4 million for the same period in 2018. Excluding $4.4 million of costs associated with the strategic restructuring initiative recorded in the nine months ended September 30, 2019, the decrease of $2.7 million was due to decreases in commercial team personnel and pre-commercial consulting costs incurred for the anticipated launch of IV meloxicam following the receipt of the second CRL. These decreases in costs were offset by increases in costs associated with the debt financing early in the year, public company costs including legal fees, business development costs in the Company’s CDMO segment as well as increased professional fees associated with addressing the first and second CRLs issued by the FDA regarding their NDA for IV meloxicam.

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Change in contingent consideration valuation for the nine months ended September 30, 2019 was ($15.2) million, compared to $7.0 million for the nine months ended September 30, 2018. This non-cash expense was related to the change in the probability adjusted fair value of the contingent consideration that would be due to Alkermes upon passage of time or the achievement of certain milestones. The change in contingent consideration is primarily attributed to the change in estimated timing of potential FDA approval and a potential launch of IV meloxicam.

Amortization expense was $1.9 million for each of the nine months ended September 30, 2019 and 2018. This expense was solely related to the amortization of Recro’s royalties and contract manufacturing relationships intangible asset over its estimated useful life.

Interest expense, net, was $13.9 million and $6.1 million for the nine months ended September 30, 2019 and 2018, respectively. The increase was primarily due to the higher principal balance on their Athyrium senior secured term loan and amortization of the related financing costs.

The Company records a full valuation allowance against its deferred tax assets therefore, there was no income tax benefit for the nine months ended September 30, 2019. For the nine months ended September 30, 2018, the income tax benefit was $7.4 million, which was recorded prior to the recording of the full valuation allowance for United States operations in the fourth quarter of 2018.

For the nine months ended September 30, 2019, Recro reported a net loss of $9.1 million, or $0.41 per share, compared to a net loss of $38.4 million, or $1.91 per share, for the comparable period in 2018.

Financial Guidance

For 2019, Recro Pharma is raising its revenue guidance from $91-94 million to an anticipated $98-$100 million.  The Company is also raising its CDMO Operating Income guidance from $35-39 million to $40-44 million and CDMO EBITDA, as Adjusted* from $44-46 million to $48-$50 million.  These increases are based on current trends, including organic growth from existing customers and new business prospects. This guidance takes into consideration existing contracts and timing of customer order patterns, as well as the Company’s experience with customer’s product market estimations.

Source: Recro Pharma, Inc., 490 Lapp Road, Malvern PA 19355
*CDMO Operating Income, as adjusted, and CDMO EBITDA, as adjusted are non-GAAP financial measures (See reconciliation of non-GAAP financial measures from the Company).

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