Q1 2021 Recro Pharma Inc Earnings Call

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Thank you for calling on the conference.

For 898666.

Yeah, the spelling of your first and last name.

John Brown, J O H N B R O W N.

Your company.

Error AI E R. A.

Okay.

And your E mail please.

J O H N at a I E R. A dot com.

Thank you John.

Thank you.

For $17 million and net loss to be in the range of $15 6 million to $13 6 million.

Guidance takes into consideration overcoming the impact from the loss of two commercial programs in 2020 existing market forces contracts timing of customer orders the accuracy of our customers' product market estimations and the company's current beliefs and estimations with respect the success in.

Timing related to growing and diversifying the company's new business development services revenue.

Experience shows that a new business development organization as there is it re growth takes multiple quarters to optimize performance. The company cautions against extrapolating quarterly results to estimate full year results.

Before I hand, the call back to David I would like to highlight the recent success, we've had strengthening the company's financial position.

Key component of the company's growth strategy as many of you know <unk> has an existing credit facility with the theory on capital management.

In late 2020, the company signed an amendment to this agreement under which re grow prepaid 9 million of principal without penalty and favorably adjusted the agreements leverage ratios and liquidity parameters. During the first quarter of 2021. The company signed another amendment to this agreement under which the credit facilities outstanding debt.

<unk> was reduced from $116 million to $100 million any interest rate governing the facility was decreased by one 5%.

Furthermore, there will be no additional principal amortization during the remaining term of the facility, which runs through March of 2023.

In exchange for the reduction of interest and a portion of the debt Ah cerium received $9 million in equity and re growth as a result of these amendments recross successfully deleveraged a total of $25 million of debt from our balance sheet reduced our stated interest rate and made progress toward our goal of strengthening our overall financial position.

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We expect these amendments will result in cash interest savings of approximately $5 million in 2021, and approximately $6 million for the full year of 2022. In addition, we have added a theory them as an investor and partner in growth and we are very pleased to have their support with.

This concludes my financial overview I'll now turn the call back over to David for an update on operations and achievements during the period David.

Thanks, Brian.

As I previewed in my opening comments my first full quarter of <unk> was a very active one during which our team created an initiated execution of a comprehensive plan to grow the company.

Today I am pleased to report that we've made progress in each of the following four strategic objectives, expanding and diversifying <unk> customer base strengthening our financial position in order to better support both organic and inorganic growth augmenting our leadership as well as our restructuring our operational or.

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And continuing the upgrade and expansion of our facilities and capabilities to support clinical stage projects, while expanding commercial programs on high value technology transfers and validation.

Yes.

During the second half of 2020 recourse saw a decrease in revenue due to a decline in sales of a number of commercial pharmaceutical products.

Multiple independent pharma market tracking reports have documented COVID-19 related sales decreases across most therapeutic categories and <unk> was not immune to the slowdown as the company was notified by two customers of their decision to terminate two commercial products in 2020.

Yeah.

This experience.

Emphasizes the importance of building a broad and diverse client base that can withstand the fluctuations of market volatility.

With this in mind, we have worked diligently to reduce our dependency on a limited number of programs and are pleased to report that we were awarded multiple contracts in the first quarter alone.

This represents one of the most productive quarters re growth has ever had in terms of contract execution for both new and incremental business I credit this growth as much to re gross technical and execution reputation as to our new business development team, which I'll address in greater detail a bit later.

The contract wins during the first quarter are a combination of contracts for the new manufacturing client, a new clinical trial packaging client and expansion of projects with several existing customers.

Each of these projects represents a step towards establishing sustainable profitability and diversification of our customer base.

In particular, we're pleased to have clients spanning the entirety of repos capabilities as well as across the spectrum of product development activities at the earliest stage of this spectrum, our formulation development offerings, which then lead into clinical trial materials manufacturing business. This service was launched less than a.

A year ago re growth and we're pleased with our growing visibility in this segment. We expect this business to be a high value revenue channel for the company in the coming years, and we're already seeing promising growth in this offering.

Historically <unk> is specialized in the manufacturer of complex solid oral dose commercial stage products. The addition of a new client for this portfolio is an important win for us as it allows us to leverage our expertise and demonstrate our strength relative to peer companies importantly.

Importantly, each new customer that we signed today opens the door for multiple other projects with that customer in the future. There is no better validation at this point than the multiple project expansions, we signed with existing customers during the quarter.

Such expansions are particularly gratifying as they inherently offer efficiencies compared to new customer projects that are being on board for the first time further they signify the degree to which our existing customers value our service our expertise and our deliverables validating the company's tagline start with re growth stay with <unk>.

Growth.

The second step on our growth strategy is to strengthen our financial position in order to better support both organic and inorganic growth.

We also made great progress on this front during the quarter as Ryan just stated the amendments to our outstanding credit facility will save the company millions of dollars in the years to come in addition, our multiple customer wins during the quarter, we will increase our top line revenue and we expect the increase in capacity utilization will improve margins over time.

On.

The third prong in our strategy is to augment our leadership as well as restructure our operational organization again <unk> made great strides in this area during the quarter for.

First the company appointed Jim Miller to our board in February many of you already know Jim. He is a highly regarded advisor on drug manufacturing strategy and our preeminent authority on the biopharmaceutical CMO industry. He is the founder and former President of farm source. The CMO industries principal source of market intelligence.

<unk>, which was sold to global data a London based publicly traded provider of market intelligence services in 2016, Jim has an extraordinary thought leader in our sector and we're thrilled to have his guidance and vision as we move forward.

As I mentioned previously we have also significantly strengthened our business development team.

As we recently announced the company has added six new members to our BD team, including sales Representatives for our clinical trial services business as well as regional Representatives bolstering the companys reach and critical life science markets in northern and Southern California, Boston in the Midwest with these <unk>.

<unk> <unk> business development team is now comprised of 11 experienced professionals led by long time global sales and marketing executive Bill Hirschmann as Brian stated in his comments typically when a CMO puts a new business development team into place one can expect a time lag of several quarters before.

Realizing tangible results in terms of new business being signed.

Given that we are particularly impressed with our BD teams Q1 achievements and their efforts to quickly get up to speed and effectively sell our broad range of services.

We look forward to reported many more business development successes in the future.

Last but not least we continue to enhance our facilities and capabilities in order to best support the needs of our growing customer base and its demand.

During the first quarter, we completed validation of our new granulation suite.

And we are currently running a registration batch and a feasibility batch and this new suite for two of our new customers as well as running a registration batch phase on a different equipment train for a third customer. We are also seeing returns on our investment in packaging and labeling capabilities as evidenced by the new contracts we have put.

In place for these services.

In closing I wish to reiterate our team's commitment to achieving sustainable growth and profitability and doing so with a renewed mindset towards advancing our diversity equity and inclusion efforts as well as running our operations in a sustainable responsible manner.

We have carefully evaluated the opportunity at hand, and developed a clear and decisive strategy to achieve growth visibility on leadership in this sector.

Going forward, we expect to continue to execute against this plan expanding and diversifying our customer base, taking steps to strengthen our financial position optimizing our leadership and teams and enhancing our services and facilities to attract new business and best support growing demand.

This concludes my prepared remarks for today and we can now open up the call for questions.

Operator.

Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question price per pound key please standby, while we compile the Q&A roster.

Our first question comes from Matt Hewitt with Craig Hallum Capital You May proceed with your question.

Yeah. This is Lucas on for Matt Hewitt here at Craig Hallum.

First off congrats on the good quarter.

And then I guess you didn't really provide an update on the tech transfer that you've had in progress with the <unk>.

I believe it's for Japanese pharma company, I think you've been getting a small amount of revenue related to that should we expect that to step higher.

In the back half of the year.

Hey, Thanks for the question Lucas.

Well I think I'll do is defer over to Brian for detail on it I know that.

Progressing on that tech transfer, but as for expectations going forward, let me defer to Ryan. Thank you.

Hi, Lucas Thanks for the question. So we are making progress on the tech transfer.

Registration batches for the customer and we do continue to generate for.

Revenue for that customer as we do those services for them.

And as we previously stated we're currently expecting should also generate commercial revenues from that customer beginning in 2022.

Okay. That's helpful. And then I guess for your ADHD products have you begun to see an uptick in orders there now that kids are back in school at least in some parts of the world.

Yes, it's a great question.

Lucas.

I would say is that overall for.

The data that we review, we can see that debt per script volume trends improved in Q1.

But overall, there is still well below baseline for for pre COVID-19 levels.

I think that some of the third party data that we've reviewed recently suggests that they are still going to be that ongoing impact.

Through the first half of 2021 were there essentially.

Predicting.

Our GAAP and diagnosis visits still being down roughly 12% and projecting about a 4% decline in prescription volumes due to those lost diagnosis visit so.

Overall prescription volumes are still overall across all therapeutic categories are down.

In the mid high to single digit range and more specific to the drugs that we manufacture.

Pediatrics therapeutic area is down over 30%. So it's still down significantly I'd say from from an ADHD market perspective, although it is still down pre COVID-19 levels.

It's not down as much.

Much as all of the other day.

The general pediatric category.

And it's been relatively stable over the past few quarters.

Thanks, that's really good color.

Those are all the questions I had.

Great. Thank you.

Thank you. Our next question comes from Jacob Johnson with Stephens, Inc. You May proceed with your question.

Hey, guys, it's Mason on for Jacob Thanks for taking the questions.

Appreciate the 2021 guide as we look at the remaining quarters of the year, how should we think about phasing or seasonality for the balance of this year any comments on big puts or takes that we should think about are taken into account.

Okay.

Go ahead Ryan.

So you know.

Thanks Mason overall for the first quarter as you saw.

We were at the high end of the range that we set out achieving achieving 70% sequential growth compared.

To the same period of last year, we saw the decline, but that was as we stated before related to the discontinuation of some previously.

Previously described product line discontinuation, which we're creating some headwinds for us.

And.

I think what's important with the guidance as you know.

We're still projecting to grow revenue in the low to mid single digit range in EBITDA in the high single digit.

20% range.

And that growth is really a combination.

<unk>.

Uh huh.

It's a combination of.

Various things, including you know the.

The market forces and <unk>.

Improvement from last year, where we saw more lumpiness from our customers rebalancing their inventory levels.

Got it thanks for that Ryan and maybe a more high level question for David here.

And the biologics market spare capacity is really hard to come by even before COVID-19. It seems like demand was outpacing supply, which COVID-19 has just made worse could you maybe talk about the supply demand dynamic for for small molecule manufacturing and how much spare capacity as they are out there in the market.

Yes.

An important question. Thank you.

One other things I mean macro that we're seeing.

As per.

Pressure and expectation on Biopharma companies to really take a deeper look at their supply chain.

And focus on.

Patriate ing or transitioning.

Supply.

Sourcing to the U S.

Particularly for products being sold in the U S and so this is something thats really.

<unk> generated a lot of attention in the space.

And one other reasons, we feel good about our position.

Is that we do have the capacity we are obviously located in the U S and the small molecule market remains the largest market.

Some.

Some would say over most estimates out us the small molecule market greater than 50% of the total.

Every year for the past several years there have been more small molecule drugs approved then biologics.

And so very quietly the small molecule market just continues to be the majority position in the market.

And because of that and even recent pipeline analysis. We did showed that there are even a greater percentage of new small molecules in development than biologics believe it or not as a percentage and so.

On the demand for small molecule and oral <unk>.

Solid dose is solid.

The expectation that production will migrate to or repatriate to the U S is a real dynamic that we're seeing the.

Expectation of Biopharma companies.

That they will have a second source put in place for business continuity purposes is a very important dynamic and it's not just talk anymore people are really focused.

<unk> focused on that and the fact that we have that capacity and that historic goal track record of commercial production bodes well for us and it gives us confident and Thats one of several reasons why and I know you hear this a lot from a lot of Ceos, but I really do bill.

Leave that re grow as significantly undervalued.

You look at transaction multiples and Ebitdas that we see in the industry today.

You will see that the undervaluation conclusion I draw is.

Pretty straightforward and we.

We understand we're currently on a rebuilding mode. Since I've joined the company. We are hopeful that our evaluation will become reflective of that in the coming quarters. So thanks again for your question.

Thanks for both of you as well congrats on the quarter.

Thank you.

Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to David and low for any further remarks.

Thank you to everyone participating on today's call and webcast. Many thanks to our partners and our investors. We greatly appreciate your continued support and a special thanks to all of our employees at re growth. Our employees are the heart of our organization and it is their dedication to quality and excellence that drives our moment.

On them forward. Thank you again for participating today and for your continued support of re growth.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

Yes.

Okay.

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Sure.

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