Recro Reports Second Quarter 2021 Financial Results

Recro Pharma

EXTON, PA — Recro Pharma, Inc. (NASDAQ: REPH) recently reported financial results for the second quarter and six months ended June 30, 2021.

“This is a very exciting time at Recro, and today, the company is pleased to report strong second quarter earnings. During the quarter, with the addition of new projects for Astex Pharmaceuticals and Ensysce Biosciences, as well as a new unnamed customer, we continued to expand and diversify our customer base, reduce our portfolio concentration risk, strengthen both our top-line and margins, and continue to generate strong positive cash flow as we progress toward long-term profitability,” said David Enloe, president and chief executive officer.

“Recro also significantly strengthened its financial position during the period with the closing of an oversubscribed underwritten public offering in May that raised net proceeds of $32.1 million. These funds, combined with two prior amendments to the company’s outstanding credit facility during 2021 with Athyrium, have fortified our cash position and improved our debt covenants.

“And finally, during and subsequent to the second quarter, the company continued to expand and enhance the business through leadership and talent. In June, Recro announced the appointment of Laura L. Parks, Ph.D. to its board of directors. Laura is an experienced business leader with a track record of developing high performance, market-focused teams at a number of leading global biopharma, CDMO and food industry companies. In July, Recro announced the appointment of Erica Raether as the company’s inaugural vice president of people, culture and ESG (“environmental, social and governance”). Erica has 20 years of human resources leadership experience within the biotech and medical device industries focused on creating and executing innovative strategies that drive employee engagement, advance ESG objectives and achieve operational goals. We are very pleased to have Laura and Erica on board at Recro, and we expect both of these appointments to make significant contributions to the organization in the future.

“In closing, I believe the last six months, and Q2 in particular, have been validating for the company. We continue to execute our newly implemented strategy and have seen early and impressive results. Our team continues to grow, bringing superb CDMO experience and other talent critical to building an exceptional organization. Today, we have a stronger, more diverse customer base and a portfolio spanning the entire biopharma product life cycle, from preclinical projects to mature commercial programs. Our financial status has improved significantly since the end of fiscal 2020 with the completion of a successful financing, and the restructuring and reduction of the company’s outstanding debt. And finally, we continue to make progress enhancing the company’s capabilities and competencies, which will to be critical to our efforts to drive continued growth of our business, both through organic and inorganic activities.”

Second Quarter 2021 and Other Recent Highlights

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Strengthened leadership and organizational improvements:

  • In June, Recro announced the appointment of Laura L. Parks, Ph.D. to its board of directors. Dr. Parks recently served on the executive leadership team at Patheon, a global biopharma CDMO, until its acquisition by Thermo Fischer Scientific in 2017. In this role, she led strategic commercial and operational initiatives including development and execution of an end-to-end pharmaceutical services offering, as well as global strategic enterprise accounts organization. Prior to Patheon, Dr. Parks served as president of DSM Pharmaceuticals and vice president of Solae, a division of DuPont.
  • In July, Recro announced the appointment of Erica Raether as the company’s inaugural vice president of people, culture and ESG. This new position will be critical given Recro’s commitment to achieving sustainable growth and profitability, and doing so with a mindset towards advancing the Company’s diversity, equity and inclusion efforts as well as running their operations in a sustainable, responsible manner. Ms. Raether most recently served as the U.S. vice president of human resources and was a member of the global leadership team at Ajinomoto Bio Pharma Services, the global CDMO arm of Ajinomoto Co., which employs approximately 1,800 individuals and operates in Europe, India, Japan and the US.

New business growth:

  • New manufacturing customers. During the second quarter, the company signed a development and cGMP manufacturing agreement with a new, unnamed client. Under the terms of the agreement, Recro will provide early-stage development and manufacturing services to support the client’s ongoing clinical development of an orally administered, minimally-absorbed investigational compound. The company also announced the signing of a new development agreement with Astex Pharmaceuticals, Inc., a leading developer of novel therapeutics for cancer.
  • Existing customer project expansions. During the second quarter, the company announced the signing of additional agreements with an existing customer, Ensysce Biosciences, Inc. Under these new agreements, Recro will provide early-stage development and manufacturing services to support two of Ensysce’s development programs. Recro and Ensysce have already commenced the initial phase of these projects.
  • Clinical trial support services. During the second quarter, the company expanded the clinical capabilities of its growing Clinical Trial Services (CTS) offerings. Included among the newly added CTS capabilities are clinical-scale sachet and blister packaging for clinical trial pharmaceuticals. These services provide a new offering with which to support the company’s existing clients, and attract new clients. Further, the shorter sales and earnings cycles of these services allow for a more rapid and efficient contribution to revenue.During the quarter, Recro also successfully established a relationship with a European Union Qualified Person (or QP) for its CTS offerings following a successful review process. A QP declaration is required for any biotechnology or pharmaceutical company seeking to conduct a clinical trial in Europe using a drug product manufactured in a non-EU country. Based on the results of the QP’s audit, the QP organization has agreed that it can represent Recro’s clients for release of materials in the EU, allowing Recro, for the first time, to support the Europe-based clinical trial efforts of its customers.
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Other corporate and financial developments:

  • Closed public underwritten offering in May 2021. During the second quarter, Recro closed an underwritten public offering of 15,333,332 shares of its common stock, including 1,999,999 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares to cover over-allotments, at a public offering price of $2.25 per share. The net proceeds to Recro from this offering were approximately $32.1 million. Recro intends to use the net proceeds from the offering for general corporate purposes, which may include repayment of a portion of outstanding debt and future acquisitions.

Financial Results for the Three Months Ended June 30, 2021

At June 30, 2021, Recro had cash and cash equivalents of $45.7 million compared to $23.8 million as of the end of the prior fiscal year. The increase in cash is primarily due to the net proceeds of $32.1 million from an underwritten public offering that closed in May 2021.

Revenues for the quarter ended June 30, 2021 were $18.0 million. This represents a 7% increase compared to the first quarter of 2021, and a 16% increase compared to revenues of $15.5 million recorded during the prior year period. The year-over-year increase was primarily the result of increased product sales from one of the Company’s commercial partners as well as higher revenues from their clinical trial materials business, including revenue from a new commercial product tech transfer project.

Cost of sales for the quarter ended June 30, 2021 was $12.3 million compared to $11.6 million for the comparable period of 2020. The increase of $0.7 million was primarily due to higher commercial manufacturing volumes partially offset by lower costs due to certain employment incentive tax credits in 2021.

Selling, general and administrative expenses for the second quarter were $3.8 million, compared to $4.3 million recorded in the 2020 period. The decrease of $0.5 million was primarily related to lower public company costs and stock based compensation expense.

Interest expense was $4.0 million for the three months ended June 30, 2021, a decrease compared to $5.0 million for the comparable period of 2020. The decrease of $1.0 million was primarily due to reduced term loan borrowings under the Credit Agreement with Athyrium, as reported last quarter, as well as a decrease in the LIBOR base rate of interest on the Company’s term loans under the Credit Agreement.

For the quarter ended June 30, 2021, the company recorded a net income of $1.2 million or $0.03 per diluted share, as compared to a net loss of $6.0 million or $0.25 per diluted share, for the comparable period of 2020. EBTIDA, as adjusted* for the period was $5.4 million compared to $4.7 million in the prior year period.

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Financial Results for the Six Months Ended June 30, 2021

Revenue for the six months ended June 30, 2021 was $34.8 million, compared to $37.3 million for the same period in 2020. The decrease of $2.5 million in revenue was primarily the result of the discontinuation of two commercial product lines by the Company’s commercial partners announced in the first quarter of 2020. During the 2021 period, increased product sales from two of their commercial partners as well as higher revenues from the Company’s clinical trial materials business, partially offset the decrease.

Cost of sales for the six months ended June 30, 2021 was $26.7 million, compared to $29.9 million for the same period in 2020. The cost of sales decrease of $3.2 million, was primarily due to lower commercial manufacturing volumes and reflects lower costs due to the prior year reduction in force as well as certain employment incentive tax credits in 2021.

Selling, general and administrative expenses for the six months ended June 30, 2021 were $8.5 million, compared to $9.7 million for the same period in 2020. The decrease of $1.2 million was primarily related to lower public company costs and stock based compensation expense.

Interest expense was $7.8 million and $10.1 million during the six months ended June 30, 2021 and 2020, respectively. The decrease of $2.3 million was primarily due to reduced term loan borrowings under the Credit Agreement with Athyrium as well as a decrease in the LIBOR base rate of interest on the Company’s term loans under the Credit Agreement.

For the six months ended June 30, 2021, Recro reported a net loss of $5.5 million, or $0.16 per diluted share, compared to a net loss of $13.7 million, or $0.58 per diluted share, for the comparable period in 2020. EBTIDA, as adjusted* for the period was $8.1 million compared to $7.4 million in the prior year period.

*EBITDA, as adjusted is a non-GAAP financial measure.

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