Recro Pharma, Inc., a pharma company with a high-performing, revenue generating contract development and manufacturing (CDMO) segment and an Acute Care segment, reported financial results for the three months ended March 31, 2019.

“Our CDMO business is off to a strong start this year, generating $25.1 million in first quarter revenues, a 28% increase from the prior year first quarter,” said Gerri Henwood, President and Chief Executive Officer of Recro Pharma. “Growth of the Gainesville CDMO continues to accelerate as a result of strong demand from the existing commercial portfolio and growth in new business development activity.  Operating income, Adjusted EBITDA* and operating income, as adjusted*, for the first quarter of 2019 was $9.1 million, $11.6 million and $9.2 million, respectively, which is an increase of 38%, 68% and 90%, respectively, compared to the same quarter of 2018.”

“In the Acute Care segment, we continue to believe that IV meloxicam is an important product that can ultimately receive FDA approval and that it is an attractive non-opioid pain management candidate for acute pain.  We will continue to pursue FDA approval for IV meloxicam.  While we continue to pursue potential approval and partnering of IV meloxicam, the Company and Board are also exploring and evaluating other possible corporate structures, including the possibility of separating the Acute Care and CDMO business segments,” concluded Ms. Henwood.

First Quarter 2019 and Recent Events

Recro Gainesville

Strong Gainesville Manufacturing Performance.  Recro’s manufacturing business continued to perform well with revenues of $25.1 million for the first quarter ended March 31, 2019, compared to $19.5 million in the first quarter ended March 31, 2018.

Signed Multi-Year Extension Agreements with Teva and Novartis.  Under the terms of the extended Teva agreement, effective January 1, 2019, Recro Gainesville, LLC will continue to supply Teva with Verapamil SR^® capsules for six years through 2024 and Teva will continue to be Recro Gainesville’s exclusive U.S. distributor of Verapamil SR.  Under the terms of the extended Novartis agreement, also effective January 1, 2019, Recro Gainesville will continue to be the exclusive global supplier of Ritalin LA^® and Focalin XR^® capsules to Novartis for five years through 2023.

IV Meloxicam

Received Complete Response Letter (CRL) from FDA for IV Meloxicam New Drug Application (NDA).  Recro received a second CRL from the FDA regarding its NDA seeking approval for IV meloxicam for the management of moderate to severe pain.  Recro intends to continue pursuing regulatory approval for IV meloxicam, while also working to secure a strategic partner for the potential commercialization of the asset.

Data Presentations and Publications. During the first quarter of 2019, the Company had several data presentations at medical meetings and manuscripts published in peer-reviewed medical journals, including:
-  Presented New Meta-Analysis for IV Meloxicam at the 44^th Annual Regional Anesthesiology and Acute Pain Medicine Meeting;
-  Hosted Educational Symposiums on Pain Management Options in Total Joint Replacements at AAOS;
-  Published a New Pooled Analysis of IV Meloxicam’s Safety and Opioid-Reducing Effects Across Three Phase III and Four Phase II Studies; and
-  Published Phase III Study Evaluating the Safety of IV Meloxicam in Patients Following Major Elective Surgery.

Corporate and Financial

Restructured Acute Care Segment. Following receipt of the second CRL, Recro reduced the operating expenses of its Acute Care Segment, including a reduction in staff of approximately 50 employees.  Recro Pharma believes this initiative significantly reduces its 2019 planned cash burn and anticipates becoming cash flow breakeven in the third quarter of 2019 and cash flow positive in the second half of 2019 (excluding the impact from any potential partnering or strategic transactions).

Obtained Non-Dilutive Capital Through Expanded Athyrium Credit Facility. The Company closed on an amended and expanded $125 million credit facility with investment funds managed by Athyrium Capital Management, LP. The prior $100 million credit facility, under which Recro had drawn $70 million, required various conditions to draw the remaining $30 million of available capital.  This amendment substantially increased and fully funded the capital under the expanded $125 million credit facility, providing immediately available net proceeds of $40.5 million upon closing.

Board Appointment.  Recro appointed Arnaud Ajdler to the Company’s Board of Directors. Mr. Ajdler is the managing partner of Engine Capital, L.P. and brings over 15 years of finance and corporate governance experience to Recro’s Board.

Financial Results

As of March 31, 2019, Recro had cash, cash equivalents and short-term investments of $58.0 million.

Revenues and cost of sales were $25.1 million and $14.4 million, respectively for the three months ended March 31, 2019, compared to $19.5 million and $10.5 million for the three months ended March 31, 2018. The increase of $5.6 million in revenue was due to increased royalties recognized from one of our commercial partners and an increase in product sales to various commercial partners. Cost of sales increased due to expansion of our service and development capabilities as well as growth in manufacturing demand.

Research and development expenses for the three months ended March 31, 2019 were $9.6 million, compared to $8.4 million for the three-month ended March 31, 2018. The increase of $1.2 million was primarily due to an increase in pre-commercialization manufacturing costs for IV meloxicam and a net increase in development costs for other pipeline products.

General and administrative expenses for the three months ended March 31, 2019 were $14.2 million, compared to $9.5 million for the same period in 2018. The increase of $4.7 million was due to commercial team personnel and pre-commercial consulting costs in preparation of the anticipated launch of IV meloxicam, costs associated with the debt financing, public company costs including legal and audit fees, business development costs in our CDMO segment as well as increased professional fees associated with addressing the original and second CRLs issued by the FDA regarding our NDA for IV meloxicam. We believe these increased first quarter 2019 expenses will not recur in 2019, although the majority of the recent restructuring and associated costs following the second CRL will be incurred in the second quarter of 2019.

Change in contingent consideration valuation for the three months ended March 31, 2019 was ($15.1) million for the three months ended March 31, 2019, compared to $2.5 million for the three months ended March 31, 2018. This non-cash expense was related to the change in the 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 of intangibles for the three months ended March 31, 2019 was $0.6 million for each of the three months ended March 31, 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 $3.6 million for the three months ended March 31, 2019, compared to $2.0 million for the three months ended March 31, 2018. The increase of $1.6 million was primarily due to the higher principal balance on our Athyrium senior secured term loan and amortization of the related financing costs.

The Company recorded a full valuation allowance against its deferred tax assets therefore, there was no income tax benefit for the three months ended March 31, 2019. For the three months ended March 31, 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 March 31, 2019, Recro reported a net loss of $2.0 million, or $0.09 per share, compared to a net loss of $12.5 million, or $0.65 per share, for the comparable period in 2018.

Financial Guidance

As of May 10, 2019, Recro Pharma is reiterating that its revenue guidance for 2019 is expected to be in the range of $85-87 million. The Company is also reiterating that its operating income is expected to be in the range of $28-30 million and EBITDA (as Adjusted*) is expected to be in the range of $38-40 million.  All of these projections are based on current CDMO business 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.