Q2 2021 Recro Pharma Inc Earnings Call

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Hello, and thank you for standing by and welcome to the REIT second quarter 2021 conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session back a question. During the session you will need to press star 1 on your telephone please be advised that today's conference is.

<unk> recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your Speaker today, Stephanie Diaz Investor Relations. Please go ahead.

Thank you Hello, and thank you for joining us on today's call, we have David N Miller, President and CEO and Brian Lane, Chief Financial Officer today, we will be providing an update overview of free close contract development and manufacturing business, including updates from corporate activities and financial results for the quarter ended June 30th 2020.

And 1.

After our prepared remarks, we will welcome your questions before we begin and I'd like to caution that comments made during this conference call today August 9th 2020, 1 will contain certain forward looking statements within the meaning of the private Securities Litigation Reform Act and 1995 concerning the current beliefs of the company, which include a number of assumptions risks.

And uncertainties actual results could differ from these statements and the company undertakes no obligation to revise or update any statements made today and.

Courage you to review all of the company's filings with the Securities and Exchange Commission concerning these and other matters. Our earnings press release and this call will include discussion of certain non-GAAP information you can find our earnings press release, including relevant non-GAAP reconciliations from our corporate website at Ri Crown C. D M O dot com.

I will turn the call over to David and low recourse President and CEO.

Thank you Stephanie and thank you and everyone who has dialed in and to those who are participating today via webcast.

This is a very exciting time at re crew today. The company is pleased to report strong second quarter earnings as well as the addition of multiple new customers and projects to our pipeline during.

During the quarter. The company also has significantly strengthened its financial position with the closing of an oversubscribed underwritten public offering in may to raise net proceeds of $32.1 million. These funds combined with strategic pay downs of the company's outstanding credit facility during 2020.1.

And have substantially increased our cash balance and reduced our debt and.

And finally, the company continued to strengthen the business through leadership and talent with 2 key appointments and achieve milestones that enhance our operational capabilities and competencies and I will provide additional details on all of those achievements, followed and an overview of our Q2 and 6 month financial results for that I'll turn the call.

Over to Ryan.

Thank you David Good afternoon, everyone before I begin and addition to the brief financial overview I'll provide on the call today additional details on our financial results for the second quarter and 6 months ended June 32021 are included in our press release issued prior to this call and and our form 10-Q.

And it was filed today with the SEC.

I'll begin with an overview of our financial results for the second quarter revenues for the quarter ended June 32021 were 18 million. This represents a 7% increase compared to the first quarter and 2021, and a 16% increase compared to revenues of $15.5 million reported during the prior year period.

And year over year increase was primarily the result of increased product sales from 1 of our commercial partners as well as higher revenues from our clinical trial materials business, including revenue from our new commercial product Tech transfer project Importantly, our Q2.2021 revenues reflect our ongoing efforts to over.

From the significant challenges that we faced in 2020, including the discontinuation of 2 commercial product lines by our commercial partners that partially offset our growth and the quarter cost of sales for the quarter ended June 32021 was $12.3 million compared to $11.6 million for the comparable period of 2020.

The increase of <unk> 7 million was primarily due to higher commercial manufacturing volumes and was partially offset by lower costs due to certain employment incentive tax credits in 2021.

SG&A expenses for the second quarter were $3.8 million compared to $4.3 million reported and the 2020 period. The decrease of <unk> 5 million was primarily related to lower public company costs and stock based compensation expense.

Interest expense was $4 million per the 3 months ended June 32021, the decrease compared to $5 million per the comparable period of 2020.

The decrease of 1 million was primarily due to reduced term loan borrowings under the credit agreement with a theory as reported last quarter as well as a decrease and a LIBOR base rate of interest on our term loans under the credit agreement for.

For the quarter ended June 32021, the company recorded net income of $1.2 million or <unk> <unk> per diluted share as compared to a net loss of 6 million or <unk> 25 per diluted share for the comparable period of 2020 EBITDA as adjusted for the period was $5.4 million compared to $4.

$7 million and the prior year period.

I will now provide an overview of our financial results for the 6 months period revenue for the 6 months ended June 32021 was $34.8 million compared to $37.3 million for the same period and 2020, the decrease of $2.5 million and revenue was primarily the result of the discontinuation of <unk>.

Commercial product lines by our commercial partners announced and the first quarter of 2020.

During the 2021 period increased product sales from 2 of our commercial partners as well as higher revenues from our clinical trials materials business, partially offset the decrease cost of sales for the 6 months ended June 32021 was $26.7 million compared to $29.9 million from the same period and 2001.

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.

SG&A expenses for the 6 months ended June 32021 were $8.5 million compared to $9.7 million from the same period and 2020. The decrease of $1.2 million was primarily related to lower public company costs and stock based compensation interest expense was $7.8 million and $10.1 million during the <unk>.

6 months ended June 32021, and 2020, respectively. The decrease of $2.3 million was primarily due to the reduced term loan borrowings under the credit agreement was the theory and as well as a decrease and a LIBOR base rate of interest on our term loans under the credit agreement.

For the 6 months ended June 32021 recall reported a net loss of $5.5 million or <unk> 16 per diluted share compared to a net loss of $13.7 million or <unk> 58 per diluted share for the comparable period in 2020, our cash and cash equivalents as of June 32021 were <unk> 45.

$7 million compared to $23.8 million as of the end of the prior fiscal year. The increase and cash is primarily due to the net proceeds of $32.1 million from an underwritten public offering that closed in may of 2021.

We are also maintaining our full year revenue and EBITDA guidance.

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

Thanks, Brian upon joining <unk> last December I worked with leadership to develop and initiated a strategy designed to build the <unk> brand and business through manufacturing excellence financial strength and sustainable growth over the last 6 months and our team has made great strides with each of the 4.

Prongs of our strategy as a reminder.

Expanding and diversifying <unk> customer base, strengthening our financial position and in order to better support both organic and inorganic growth.

Mentioned, and our leadership as well as restructuring and our operational organization.

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

During the second quarter, our team continued to build on the successes of the first quarter and I will address our achievements in each area of our strategy 1.5 points beginning with the companys commitment to growing our customer base.

During the second quarter with the addition of new projects for <unk> Pharmaceuticals, and <unk> Biosciences, as well as our new unnamed customer we continue to expand and diversify our customer base and reduce our portfolio concentration risk and strengthened both our top line and margins and make progress towards sustainable profitability.

I'd like to acknowledge all of my <unk> colleagues for their successes during the past quarter.

During the second quarter, we also significantly strengthened our financial position with the closing of a successful oversubscribed underwritten public offering in may that raised net proceeds of $32.1 million and.

<unk> through 2 amendments to the company's outstanding credit facility, which were executed in December of 2020 and February of 2021 repo successfully de Levered, a total of $25 million of debt from our balance sheet and reduced our stated rate of interest. We expect these amendments will result in cash interest savings of approximately.

<unk> $3.6 million.

In 2021, and approximately $4.2 million for full year 2022.

Through these steps and achievements, we have made significant progress towards our second strategic goal of strengthening and our financial position to best support both organic and inorganic growth.

The third objective of our strategy is to augment our leadership as well as restructure our operational organization as you may recall last quarter. The company announced the addition of 6 new members to our business development team, including sales Representatives for the clinical trial services business for Cts as well.

And as regional Representatives bolstering the Companys reach and critical life science markets, and northern and Southern California, Boston and the Midwest with these additions request business development team is now comprised of 11 experienced professionals led by long time global sales and marketing executive Bill Hirschmann.

During and subsequent to the second quarter repo made additional key appointments that we believe will significantly contribute to the company's future success and culture.

In June and <unk> announced the appointment of Lora 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, CD and Mo and food industry companies. She recently served on the executive leadership.

Chip team at pace on a global Biopharma suite emo until its acquisition by Thermo Fisher scientific and 2017.

And this role she led strategic commercial and operational initiatives, including development and execution of an into and pharmaceutical services offerings as well as a global strategic enterprise accounts organization prior to pay fee on.

<unk> served as president of DSM Pharmaceuticals, and Vice President of <unk>, a division of Dupont.

And July repo announced the appointment of Eric and <unk> as the Companys inaugural Vice President of people culture, and ESG, which stands for environmental social and governance. This new position will be critical given <unk> commitment to achieving sustainable growth and profitability and doing so with a mindset towards <unk>.

<unk> and our diversity equity and inclusion efforts as well as running our operations and a sustainable responsible manner.

To that and Erica has 20 years of human resource leadership experience within the biotech and medical device industries, focusing on creating and executing innovative strategies that drive employee engagement advance ESG objectives and achieve operational goals.

Erika most recently worked with me and her role as the U S. Vice President of Human resources and was a member of the global leadership team and <unk> Biopharma services. The global <unk> arm of <unk> company, which employs approximately 1800 individuals' and operates and Europe, India, Japan and the U S. In this role she was a key man.

<unk> of the company's global and U S. Senior leadership teams with responsibility for advancing People's strategies and solutions aligned with the short and long term goals of the business for wide ranging focus included culture and change management talent acquisition and planning employee Brent employment branding.

Performance management and related employee relation activities with the additions of Lora parts, Erika rates or our new business development team and new members of our technical and operations teams. We believe we have made great strides towards our third goal of enhancing leadership and restructuring our organization and.

And we expect each of these appointments to make significant contributions to the organization and the future.

And finally today I would like to address the fourth area of strategic focus for re grow which is continuing to upgrade and expand our facilities and capabilities to support clinical stage projects, while expanding commercial programs and high value technology transfers and validation.

To this and in June <unk> announced that it and expanded the clinical capabilities of the company is growing clinical trial services Cts offerings included among the newly added Cts capabilities, our clinical scale sachet and blister packaging for clinical trial Pharmaceuticals, we are very happy to incorporate.

These services as they provide a new offering with which to support our 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.

In addition to these new Cts capabilities during the quarter <unk> successfully established a relationship with a European Union qualified person or QP for Cts offerings. Following a successful review process and <unk>.

Declaration is required for any biotechnology and pharmaceutical company seeking to conduct a clinical trial and Europe, using a drug product manufactured and a non EU country.

Based on the results of the <unk> audit to keep the organization and disagree that it can represent <unk> clients for release of materials, and the EU, allowing and re grow for the first time to support the Europe based clinical trial efforts of its customers.

In closing I believe the last 6 months and Q2 in particular have been validated and 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 CMO and sales experience as well as other talent and critical to building and exceptional organization today, we have a stronger more diverse customer base and we continue to make progress towards achieving sustainable profitability and growth our financial status has improved significantly since the.

And a fiscal 2020 with the completion of a successful financing and the restructuring and reduction of the company's outstanding credit facility and finally, we continue to make progress and enhancing the company's capabilities and competencies, which will be critical to our efforts to drive continued growth of our business both through organic and inorganic.

Activities.

As I hope I've conveyed today I'm thrilled with the accomplishments of the <unk> team I look forward to reporting on many more achievements and coming quarters I'm proud of the improvements we've made and <unk> performance during 2021 and continue to believe that given our market cap. There is a significant opportunity for value creation and appreciation ahead.

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

Thank you as a reminder to ask a question and you will need to press star 1 on your telephone.

Regarding your question on price per pound Keith Please stand by as the composite Q&A roster.

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

Good afternoon, and congratulations on all the progress.

Thanks, Matt.

A couple of questions first regarding the guidance you're reaffirming prior guidance I'm curious if you could give us a little help on the cadence last year. Obviously, there was a step down in Q4 are you anticipating something similar this year or how should we be thinking about.

Q3 and Q4.

Yeah.

So Matt Great question, and thanks for asking and good to talk to you. This afternoon, we feel really good about the guidance that we provided and maintaining our full year guidance I think if you look at the guidance that we put out and where we're at in terms of just the first half year results you can pretty pretty easy.

Really see how we can get to the full year guidance. So we feel really good about and the momentum that we have and our ability to achieve what we set out to accomplish.

Okay. So.

And not to press on this but you went from 3 million to $5.5 million and adjusted EBITDA Q1 versus Q2 to kind of stay within the range. It would imply that you'd see they're going to fall back for the second half or.

Just help me understand the puts and takes there I guess free for the second half of the year.

Yes, I mean I think debt.

Again, we feel really good I think that certainly we are not going to see the volatility that we saw during 2020.

So I would expect from a.

Consistency point of view that Q3, and Q4 will be relatively stable.

Okay. That's really helpful. Thank you and then shifting gears a little bit.

Regarding the new European clinical trial services, obviously that you're just getting that news back here in the past quarter, what does that pipeline look like how quickly can that start to ramp.

Yes. This is David I mean, what I would say is is that this allows us to expand the number of conversations we can have with <unk>.

Biopharma companies, who are wanting to expand their clinical indications into Europe or even begin clinical studies.

On both sides of the Atlantic So.

I can't really say to you and Oh, well, it's going to result, and this many millions more dollars of relationship, but what I can say is it.

Certainly broadens the way that we can be of support and bring solution to our clients clinical needs and I think it's important also to think about that as we.

Advanced discussions and enhanced relationships with clients, who have a deeper pipeline. It may very well be the case that we're supporting them already and the U S and they've got a different product that they are going to launch clinical studies for and Europe and it allows us to be to leverage the relationship we might have already built.

And therefore be able to.

Provide material for use in Europe. So we're very happy I have to tell you also the <unk> designation and relationship is not.

A throw away and it is.

Is a complicated process. It is a very serious commitment by the people who are performing and <unk> services and its not something too to.

To take lightly it took a lot of work and I'm really pleased with the results there.

That's great and then maybe 1 more and I'll hop back into queue.

And we've noticed an uptick and.

Your partners distribution partners for for wrap them and all of the last couple of weeks and that would seem to coincide with.

The Morgantown facility being shut down.

Where do things kind of fit within that market and what can you tell us and what are your expectations there.

Yeah.

Brian do you want to.

Color that forums.

Yes, I think debt.

And from our perspective, there is certainly.

And again, a lot less volatility than we experienced during 2021.

The customer that are the.

The company that you mentioned was out of the marketplace from what we can see from third party data.

And our partners are and continuing to be stable and maintain their market share and have for quite a while now.

Got it alright, thank you.

Yeah.

Thank you and as a reminder to ask a question and you'll need to press star 1 and your telephone. Our next question comes from Jacob Johnson with Stephens You May proceed and your questions.

Hey, Thanks, good afternoon, and and congrats on nice quarter and maybe just 1 other question on that last question.

It sounds like the <unk> alone and stabilize on the ADHD market can you just talk about recent trends. There are you seeing any green shoots and Ken maybe you go back to school or just any any commentary on the ADHD market.

Thanks Jacob.

Deferred Orion who tracks this very very closely so Ryan.

Thanks, Jake and good afternoon.

So.

I would say.

And from many specially category prescription volume trends.

<unk> improved compared to this time last year and understanding that this time last year were and.

A pretty heavy part of Covid, but overall levels are still below the baseline pre COVID-19 levels.

And the pediatric and volumes continue to lag there down still and the 20% range.

Got it from.

ADP and.

And from and ADHD perspective, there is some seasonality.

Within the summer months and again this is from an end user perspective, but just kids being out of school for the summer. There typically is now less usage during the summer months as well.

Got it that's helpful. Thanks for that Ryan and then maybe David just another question on the clinical trial offering.

Can you just talk about where that operating stands today and you kind of talk about the EU capabilities. You added I think you maybe add some others and.

And maybe just remind us that the longer term opportunity and clinical trials.

Right, So I mean I.

I think a lot of the value proposition to our clients from <unk> is the fact that.

We are leveraging 30.35 years of robust and market commercial manufacturing and were now sort of reverse integrating ourselves back in to being able to provide early stage preclinical and then phase 1 phase 2 phase III programs.

And so we have essentially built out.

I guess I'll call. It a miniaturized version from a scale perspective of the commercial capabilities that we have so that a client can come to us and the early stages. We can manufacturer the phase 1 and phase III materials. We also do prototype development.

And so that a client can evaluate the way that they wished for the drug to be delivered than we can produce it and then we can scale it up and ultimately be able to produce and robust commercial scale. So I would think about it that way.

As well as then we've added these clinical trial services capabilities, which are more around multiple different ways to package.

Label and distribute earlier stage program materials for clinical trial support so I hope that's helpful.

Super helpful. Thanks for that day, and maybe just 1 last thing.

And I failed to answer 1 thing the other suite that we built out from an early stage perspective, my apologies is that we've actually built out a high potency suite.

Debt, whereby we're able to support clinical trial material and manufacturing that is using more toxic materials and so it is built and a way that protects our operators from those materials and there is growing.

Growing demand in certain areas of Biopharma development for more high potent material.

Clinical trials, so we've got that under our belt as well.

Got it.

Color I can get thanks for that David and then just.

1 last question just on the new business development team and now it can take a couple of quarters and some time for these people to bear fruit, but just maybe an update on how those efforts are going.

Sure. So I mean, I think 1 thing that's really important that can get lost in <unk> and.

And the numbers is that because of Covid, we built a business development team that was not able to even see that facility ever and.

Until this past quarter.

And so we were able to and.

And and appropriate and careful way.

Have the entire team come to our facilities and Gainesville I attended that meeting 1 of our board members attended that meeting and we went through a very deep presentation and.

And a sort of and.

It created a heightened level of awareness and understanding and just relationship building between the technical staff and the business development staff and.

And I think that that really helped.

The team start to really gel understand each other's expertise.

2 different facets of the business offerings, we have and.

And really take off from there. The teams also together right now at the CPA icon Congress in Philadelphia.

And so so I like what I'm seeing I like the interactions that we're having I like the size of our funnel, that's expanding and the number of opportunities we're getting and.

Pleased with the progress but to your first point and it's something that we mentioned a quarter ago. You don't just add the team and immediately start seeing the results that they do have to leverage the relationships take projects and programs through the sales cycle and then.

To the other side, where we're performing the operations and recognizing the revenue, but I do like what we've done and the rate at which we're doing it.

Great. Thanks for taking my questions.

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 Lowe for any program marks.

Yes.

Yes.

Yes, thank you to everyone participating on today's call and webcast and particular I'd like to thank our customers and investors who continue to support our business and most importantly, I again wish to extend a special thanks to our incredible employees, who make re grow the exception exceptional company that we are thank you again for participating today.

And for your continued support of re growth.

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

Okay.

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