MALVERN, PA — Recro Pharma, Inc. (NASDAQ: REPH), a revenue-generating specialty pharmaceutical company with a high-performing contract development and manufacturing (CDMO) Segment, announced an initiative that will reduce the operating expenses of its Acute Care Segment, including a reduction in staff of approximately 50 employees. Some Acute Care Segment employees engaged in efforts to select a partner for and in obtaining FDA approval of (IV) meloxicam were retained. This initiative is expected to significantly lower operating expenses following receipt of a second Complete Response Letter (CRL) from the U.S. Food and Drug Administration (FDA) Office of Drug Evaluation II regarding its New Drug Application (NDA). The headcount reduction will not affect Recro Pharma’s CDMO Segment, which continues its strong performance, providing positive cash flow.
The workforce reduction was communicated today and the Company expects to incur the charges for expenses associated with the headcount reduction as well as additional restructuring costs during both the first and second quarter of 2019. Recro Pharma believes this plan significantly reduces the Company’s 2019 planned cash burn and anticipates becoming cash flow breakeven during Q3 and cash flow positive in the second half of 2019 (excluding the impact from any potential partnering transactions).
“Recro Pharma has faced challenges while moving IV meloxicam through the regulatory process, making difficult decisions necessary to ensure shareholder value is preserved in the short term and can be built over the long term,” said Gerri Henwood, President and Chief Executive Officer of Recro Pharma. “We continue to believe that IV meloxicam would be an attractive non-opioid pain management candidate for the hospital marketplace, and we believe it will ultimately be approved by FDA.”
Recro Pharma plans to request a meeting with the FDA to determine a path forward for IV meloxicam, which may include dispute resolution. In light of the additional timing setback due to the second CRL, the Company also intends to seek a strategic partner for the commercialization of IV meloxicam.
“We sincerely thank those employees leaving the Company for their dedicated service. Following this restructuring, our resources will be laser-focused on growing the CDMO division, obtaining marketing approval for IV meloxicam from the FDA and securing a strategic commercialization partner,” concluded Ms. Henwood.
For 2019, Recro Pharma is increasing its revenue guidance from $80 million to an anticipated $85-87 million, Operating Income from $23.5 million to $28-30 million and EBITDA, as Adjusted* from $34 million to $38-40 million, based on current trends including organic growth from existing customers and new business prospects. This guidance takes into consideration existing contracts and timing of customer order patterns, as well as the Company’s experience with customer’s product market estimations.
*Operating Income, as Adjusted and EBITDA, as Adjusted is a non-GAAP financial measure (see reconciliation page of press release)
Non-GAAP Financial Measures
To supplement our financial results determined by U.S. generally accepted accounting principles (“GAAP”), we have also disclosed in the table below the following non-GAAP information for our Contract Development and Manufacturing Organization (CDMO): “Operating Income, as Adjusted” which is Operating Income without the impact of ASU, No.2014-09 as to remove the variability of timing of revenue recognized and expected cash receipt, and “EBITDA, as Adjusted” which is “Operating Income, as Adjusted” before interest, taxes, depreciation, amortization and non-cash stock-based compensation. We believe these non-GAAP financial measures are helpful in understanding our CDMO Business as it is useful to investors in allowing for greater transparency of supplemental information used by management. “EBITDA, as Adjusted” is used by investors, as well as management in assessing our performance. Non-GAAP financial measures should be considered in addition to, but not as a substitute for, reported GAAP results. Further, Non-GAAP financial measures, even if similarly titled, may not be calculated in the same manner by all companies, and therefore should not be compared.
Reconciliation of Non-GAAP Financial Measures (unaudited)
|Full Year 2017||Full Year 2018
||Full Year 2019
|Operating Income||$||25.4||$||24.9||$28.0 – 30.0|
|less: Revenue recognition *||na||$||1.4||$0.0|
|Operating Income, as Adjusted||$||25.4||$||23.5||$28.0 – 30.0|
|Amortization of intangible assets||$||2.6||$||2.6||$2.6|
|Non-Cash stock-based compensation||$||1.0||$||1.3||$1.8|
|EBITDA, as Adjusted||$||33.8||$||32.2||$38.0 – 40.0|
|* Impact of adoption of ASU, No. 2014-09 starting January 2018|
Source: Recro Pharma, Inc., 490 Lapp Road, Malvern PA 19355
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