false 2020 Q3 0001588972 --12-31 P2Y P7Y P5Y6M P5Y6M 0.75 0.79 0.003 0.016 P6Y P6Y 0.81 0.82 0.014 0.027 P6Y7M6D P5Y9M18D 0001588972 2020-01-01 2020-09-30 xbrli:shares 0001588972 2020-11-02 iso4217:USD 0001588972 2020-09-30 0001588972 2019-12-31 iso4217:USD xbrli:shares 0001588972 2020-07-01 2020-09-30 0001588972 2019-07-01 2019-09-30 0001588972 2019-01-01 2019-09-30 0001588972 us-gaap:CommonStockMember 2019-12-31 0001588972 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0001588972 us-gaap:RetainedEarningsMember 2019-12-31 0001588972 us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-03-31 0001588972 2020-01-01 2020-03-31 0001588972 us-gaap:CommonStockMember 2020-01-01 2020-03-31 0001588972 us-gaap:RetainedEarningsMember 2020-01-01 2020-03-31 0001588972 us-gaap:CommonStockMember 2020-03-31 0001588972 us-gaap:AdditionalPaidInCapitalMember 2020-03-31 0001588972 us-gaap:RetainedEarningsMember 2020-03-31 0001588972 2020-03-31 0001588972 us-gaap:AdditionalPaidInCapitalMember 2020-04-01 2020-06-30 0001588972 2020-04-01 2020-06-30 0001588972 us-gaap:CommonStockMember 2020-04-01 2020-06-30 0001588972 us-gaap:RetainedEarningsMember 2020-04-01 2020-06-30 0001588972 us-gaap:CommonStockMember 2020-06-30 0001588972 us-gaap:AdditionalPaidInCapitalMember 2020-06-30 0001588972 us-gaap:RetainedEarningsMember 2020-06-30 0001588972 2020-06-30 0001588972 us-gaap:AdditionalPaidInCapitalMember 2020-07-01 2020-09-30 0001588972 us-gaap:CommonStockMember 2020-07-01 2020-09-30 0001588972 us-gaap:RetainedEarningsMember 2020-07-01 2020-09-30 0001588972 us-gaap:CommonStockMember 2020-09-30 0001588972 us-gaap:AdditionalPaidInCapitalMember 2020-09-30 0001588972 us-gaap:RetainedEarningsMember 2020-09-30 0001588972 us-gaap:CommonStockMember 2018-12-31 0001588972 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001588972 us-gaap:RetainedEarningsMember 2018-12-31 0001588972 2018-12-31 0001588972 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-03-31 0001588972 2019-01-01 2019-03-31 0001588972 us-gaap:CommonStockMember 2019-01-01 2019-03-31 0001588972 us-gaap:RetainedEarningsMember 2019-01-01 2019-03-31 0001588972 us-gaap:CommonStockMember 2019-03-31 0001588972 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0001588972 us-gaap:RetainedEarningsMember 2019-03-31 0001588972 2019-03-31 0001588972 us-gaap:AdditionalPaidInCapitalMember 2019-04-01 2019-06-30 0001588972 2019-04-01 2019-06-30 0001588972 us-gaap:CommonStockMember 2019-04-01 2019-06-30 0001588972 us-gaap:RetainedEarningsMember 2019-04-01 2019-06-30 0001588972 us-gaap:CommonStockMember 2019-06-30 0001588972 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0001588972 us-gaap:RetainedEarningsMember 2019-06-30 0001588972 2019-06-30 0001588972 us-gaap:AdditionalPaidInCapitalMember 2019-07-01 2019-09-30 0001588972 us-gaap:CommonStockMember 2019-07-01 2019-09-30 0001588972 us-gaap:RetainedEarningsMember 2019-07-01 2019-09-30 0001588972 us-gaap:CommonStockMember 2019-09-30 0001588972 us-gaap:AdditionalPaidInCapitalMember 2019-09-30 0001588972 us-gaap:RetainedEarningsMember 2019-09-30 0001588972 2019-09-30 reph:Segment 0001588972 reph:FurnitureAndOfficeEquipmentMember srt:MinimumMember 2020-01-01 2020-09-30 0001588972 reph:FurnitureAndOfficeEquipmentMember srt:MaximumMember 2020-01-01 2020-09-30 0001588972 us-gaap:MachineryAndEquipmentMember srt:MinimumMember 2020-01-01 2020-09-30 0001588972 us-gaap:MachineryAndEquipmentMember srt:MaximumMember 2020-01-01 2020-09-30 0001588972 us-gaap:BuildingMember 2020-01-01 2020-09-30 0001588972 us-gaap:LeaseholdImprovementsMember 2020-01-01 2020-09-30 0001588972 reph:RoyaltiesAndContractManufacturingRelationshipsMember 2020-01-01 2020-09-30 reph:Customer 0001588972 us-gaap:AccountsReceivableMember 2020-01-01 2020-09-30 0001588972 us-gaap:SalesRevenueNetMember 2020-01-01 2020-09-30 xbrli:pure 0001588972 us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember 2020-01-01 2020-09-30 0001588972 us-gaap:RestrictedStockUnitsRSUMember 2019-07-01 2019-09-30 0001588972 us-gaap:RestrictedStockUnitsRSUMember 2019-01-01 2019-09-30 0001588972 us-gaap:StockOptionMember 2019-07-01 2019-09-30 0001588972 us-gaap:StockOptionMember 2019-01-01 2019-09-30 0001588972 us-gaap:WarrantMember 2019-07-01 2019-09-30 0001588972 us-gaap:WarrantMember 2019-01-01 2019-09-30 0001588972 us-gaap:RestrictedStockUnitsRSUMember 2020-07-01 2020-09-30 0001588972 us-gaap:RestrictedStockUnitsRSUMember 2020-01-01 2020-09-30 0001588972 us-gaap:StockOptionMember 2020-07-01 2020-09-30 0001588972 us-gaap:StockOptionMember 2020-01-01 2020-09-30 0001588972 us-gaap:WarrantMember 2020-07-01 2020-09-30 0001588972 us-gaap:WarrantMember 2019-07-01 2019-09-30 0001588972 us-gaap:WarrantMember 2020-01-01 2020-09-30 0001588972 us-gaap:WarrantMember 2019-01-01 2019-09-30 0001588972 2019-11-20 2019-11-21 0001588972 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-09-30 0001588972 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001588972 us-gaap:LandMember 2020-09-30 0001588972 us-gaap:LandMember 2019-12-31 0001588972 us-gaap:BuildingImprovementsMember 2020-09-30 0001588972 us-gaap:BuildingImprovementsMember 2019-12-31 0001588972 reph:FurnitureOfficeAndComputerEquipmentMember 2020-09-30 0001588972 reph:FurnitureOfficeAndComputerEquipmentMember 2019-12-31 0001588972 us-gaap:MachineryAndEquipmentMember 2020-09-30 0001588972 us-gaap:MachineryAndEquipmentMember 2019-12-31 0001588972 us-gaap:ConstructionInProgressMember 2020-09-30 0001588972 us-gaap:ConstructionInProgressMember 2019-12-31 0001588972 reph:RoyaltiesAndContractManufacturingRelationshipsMember 2020-09-30 0001588972 reph:RoyaltiesAndContractManufacturingRelationshipsMember 2019-12-31 0001588972 reph:TermLoansUnderCreditAgreementMember 2020-09-30 0001588972 reph:PaycheckProtectiionProgramMember 2020-09-30 0001588972 reph:AthyriumOpportunitiesIIIAcquisitionLimitedPartnershipCreditAgreementMember 2020-09-30 0001588972 reph:AthyriumOpportunitiesIIIAcquisitionLimitedPartnershipCreditAgreementMember 2020-01-01 2020-09-30 0001588972 reph:FloorRateMember reph:AthyriumOpportunitiesIIIAcquisitionLimitedPartnershipCreditAgreementMember 2020-01-01 2020-09-30 0001588972 us-gaap:LondonInterbankOfferedRateLIBORMember reph:AthyriumOpportunitiesIIIAcquisitionLimitedPartnershipCreditAgreementMember 2020-01-01 2020-09-30 0001588972 reph:AthyriumOpportunitiesIIIAcquisitionLimitedPartnershipCreditAgreementMember 2017-11-17 0001588972 reph:AthyriumOpportunitiesIIAcquisitionLimitedPartnershipMember reph:SevenYearWarrantMember 2020-01-01 2020-09-30 0001588972 reph:AthyriumOpportunitiesIIAcquisitionLimitedPartnershipMember reph:SevenYearWarrantMember 2020-09-30 0001588972 reph:AthyriumOpportunitiesIIIAcquisitionLimitedPartnershipCreditAgreementMember us-gaap:WarrantMember 2020-09-30 0001588972 reph:AthyriumOpportunitiesIIIAcquisitionLimitedPartnershipSecondAmendmentCreditAgreementMember 2020-09-30 0001588972 reph:PaycheckProtectiionProgramMember 2020-05-12 0001588972 reph:PaycheckProtectiionProgramMember 2020-05-17 2020-05-18 0001588972 reph:PaycheckProtectiionProgramMember 2020-05-11 2020-05-12 0001588972 us-gaap:PurchaseCommitmentMember 2020-09-30 0001588972 us-gaap:IPOMember 2014-03-01 2014-03-12 0001588972 us-gaap:IPOMember 2014-03-12 0001588972 us-gaap:PrivatePlacementMember us-gaap:InvestorMember 2015-07-05 2015-07-07 0001588972 us-gaap:PrivatePlacementMember us-gaap:InvestorMember 2015-07-07 0001588972 us-gaap:InvestorMember 2015-07-05 2015-07-07 0001588972 reph:UnderwrittenPublicOfferingMember 2016-08-18 2016-08-19 0001588972 reph:UnderwrittenPublicOfferingMember 2016-08-19 0001588972 reph:UnderwrittenPublicOfferingMember 2016-12-15 2016-12-16 0001588972 reph:UnderwrittenPublicOfferingMember 2016-12-16 0001588972 reph:CowenAndCompanyLimitedLiabilityCompanyMember 2017-12-29 0001588972 srt:MaximumMember reph:CowenAndCompanyLimitedLiabilityCompanyMember 2017-12-28 2017-12-29 0001588972 reph:CowenAndCompanyLimitedLiabilityCompanyMember 2020-01-01 2020-09-30 0001588972 reph:AspireCapitalMember srt:MaximumMember 2018-03-01 2018-03-02 0001588972 reph:AspireCapitalMember srt:MaximumMember 2019-02-18 2019-02-19 0001588972 reph:AspireCapitalMember 2018-03-01 2018-03-02 0001588972 reph:AspireCapitalMember 2019-02-18 2019-02-19 0001588972 reph:AspireCapitalMember 2020-01-01 2020-09-30 0001588972 reph:AspireCapitalMember 2020-09-30 0001588972 reph:FirstAmendmentToTwoThousandNineteenPurchaseAgreementMember 2020-01-01 2020-09-30 0001588972 reph:WarrantsExercisePriceAndExpirationDateFourMember us-gaap:EquityMember reph:AthyriumOpportunitiesIIAcquisitionLimitedPartnershipMember 2020-09-30 0001588972 reph:WarrantsExercisePriceAndExpirationDateFourMember us-gaap:EquityMember reph:AthyriumOpportunitiesIIAcquisitionLimitedPartnershipMember 2020-01-01 2020-09-30 0001588972 us-gaap:EquityMember us-gaap:SubsequentEventMember reph:AmendmentToAthyriumOpportunitiesIIIAcquisitionLimitedPartnershipCreditAgreementMember 2020-11-30 0001588972 reph:WarrantsExercisePriceAndExpirationDateThreeMember 2019-03-01 2019-03-31 0001588972 reph:AlkermesPlcMember reph:WarrantsExercisePriceAndExpirationDateTwoMember reph:LiabilityContingentNetCashSettlementFeatureMember 2019-11-30 0001588972 reph:AlkermesPlcMember us-gaap:CommonStockMember 2019-11-01 2019-11-30 0001588972 reph:AlkermesPlcMember us-gaap:CommonStockMember 2019-11-08 0001588972 reph:EquityIncentivePlanTwoThousandAndThirteenMember 2013-10-31 0001588972 reph:AmendedAndRestatedEquityIncentivePlanMember 2015-06-30 0001588972 reph:AmendedAndRestatedEquityIncentivePlanMember 2018-05-31 0001588972 reph:AmendedAndRestatedEquityIncentivePlanMember 2017-12-01 2017-12-31 0001588972 reph:AmendedAndRestatedEquityIncentivePlanMember 2018-12-01 2018-12-31 0001588972 reph:AmendedAndRestatedEquityIncentivePlanMember 2019-12-01 2019-12-31 0001588972 reph:AmendedAndRestatedEquityIncentivePlanMember 2020-09-30 0001588972 reph:EquityIncentivePlanTwoThousandAndThirteenMember 2020-09-30 0001588972 srt:MinimumMember 2020-01-01 2020-09-30 0001588972 srt:MinimumMember 2019-01-01 2019-09-30 0001588972 srt:MaximumMember 2020-01-01 2020-09-30 0001588972 srt:MaximumMember 2019-01-01 2019-09-30 0001588972 reph:OutsidePlanStockOptionsMember 2020-01-01 2020-09-30 0001588972 us-gaap:RestrictedStockUnitsRSUMember 2019-12-31 0001588972 us-gaap:RestrictedStockUnitsRSUMember 2020-09-30 0001588972 us-gaap:CostOfSalesMember 2020-01-01 2020-09-30 0001588972 us-gaap:CostOfSalesMember 2019-01-01 2019-09-30 0001588972 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2020-01-01 2020-09-30 0001588972 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2019-01-01 2019-09-30 0001588972 us-gaap:TransferredAtPointInTimeMember 2020-07-01 2020-09-30 0001588972 us-gaap:TransferredAtPointInTimeMember 2019-07-01 2019-09-30 0001588972 us-gaap:TransferredAtPointInTimeMember 2020-01-01 2020-09-30 0001588972 us-gaap:TransferredAtPointInTimeMember 2019-01-01 2019-09-30 0001588972 us-gaap:TransferredOverTimeMember 2020-07-01 2020-09-30 0001588972 us-gaap:TransferredOverTimeMember 2019-07-01 2019-09-30 0001588972 us-gaap:TransferredOverTimeMember 2020-01-01 2020-09-30 0001588972 us-gaap:TransferredOverTimeMember 2019-01-01 2019-09-30 0001588972 country:GA 2020-09-30 0001588972 country:GA 2020-01-01 2020-09-30 0001588972 reph:BaudaxBioMember 2020-07-01 2020-09-30 0001588972 reph:BaudaxBioMember 2020-01-01 2020-09-30 0001588972 reph:BaudaxBioMember 2020-09-30 0001588972 reph:BaudaxBioMember 2019-12-31 0001588972 us-gaap:SubsequentEventMember reph:AmendmentToAthyriumOpportunitiesIIIAcquisitionLimitedPartnershipCreditAgreementMember 2020-11-01 2020-11-30 0001588972 reph:FiscalQuartersEndingSeptemberThirtyTwoThousandAndTwentyThroughDecemberThirtyOneTwoThousandAndTwentyOneMember us-gaap:SubsequentEventMember reph:AmendmentToAthyriumOpportunitiesIIIAcquisitionLimitedPartnershipCreditAgreementMember 2020-11-30 0001588972 reph:AfterFiscalQuarterEndingDecemberThirtyOneTwoThousandAndTwentyOneMember us-gaap:SubsequentEventMember reph:AmendmentToAthyriumOpportunitiesIIIAcquisitionLimitedPartnershipCreditAgreementMember 2020-11-30 0001588972 reph:FiscalQuartersEndingSeptemberThirtyTwoThousandAndTwentyThroughMarchThirtyOneTwoThousandAndTwentyOneMember us-gaap:SubsequentEventMember reph:AmendmentToAthyriumOpportunitiesIIIAcquisitionLimitedPartnershipCreditAgreementMember 2020-11-30 0001588972 reph:AfterFiscalQuarterEndingMarchThirtyOneTwoThousandAndTwentyOneMember us-gaap:SubsequentEventMember reph:AmendmentToAthyriumOpportunitiesIIIAcquisitionLimitedPartnershipCreditAgreementMember 2020-11-30 0001588972 us-gaap:EquityMember reph:AmendmentToAthyriumOpportunitiesIIIAcquisitionLimitedPartnershipCreditAgreementMember 2020-09-30 0001588972 us-gaap:SubsequentEventMember reph:AmendmentToAthyriumOpportunitiesIIIAcquisitionLimitedPartnershipCreditAgreementMember 2020-11-30

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: September 30, 2020

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 001-36329

 

Recro Pharma, Inc.

(Exact name of registrant as specified in its charter)

 

Pennsylvania

26-1523233

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

490 Lapp Road, Malvern, Pennsylvania

19355

(Address of principal executive offices)

(Zip Code)

 

(484) 395-2470

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol

Name of exchange on which registered

Common Stock, par value $0.01

REPH

Nasdaq Capital Market

 

Securities registered pursuant to Section 12(g) of the Act:

None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

  

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act.   

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No 

As of November 2, 2020, there were 23,644,631 shares of common stock, par value $0.01 per share, outstanding.

 

 

 


 

TABLE OF CONTENTS

Index

 

 

 

 

 

 

Page

 

 

 

PART I. FINANCIAL INFORMATION

 

3

 

 

 

 

 

 

 

Item 1.

 

Consolidated Financial Statements (Unaudited)

 

3

 

 

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

23

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

32

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

33

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

34

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

34

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

34

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

35

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

35

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

35

 

 

 

 

 

 

 

Item 5.

 

Other Information

 

35

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

36

 

 

 

 

 

 

SIGNATURES

 

38

 

 

 

 

 

 

 

2

 


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RECRO PHARMA, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

(amounts in thousands, except share and per share data)

 

September 30, 2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,487

 

 

$

19,148

 

Accounts receivable

 

 

13,634

 

 

 

14,389

 

Contract asset

 

 

9,728

 

 

 

8,851

 

Inventory

 

 

11,580

 

 

 

15,072

 

Prepaid expenses and other current assets

 

 

2,492

 

 

 

2,700

 

Total current assets

 

 

58,921

 

 

 

60,160

 

Property, plant and equipment, net

 

 

43,480

 

 

 

42,212

 

Intangible assets, net

 

 

1,345

 

 

 

3,283

 

Goodwill

 

 

4,319

 

 

 

4,319

 

Other assets

 

 

503

 

 

 

485

 

Total assets

 

$

108,568

 

 

$

110,459

 

Liabilities and stockholders’ deficit

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

657

 

 

$

989

 

Accrued expenses and other current liabilities

 

 

4,802

 

 

 

4,324

 

Current portion of debt

 

 

9,458

 

 

 

 

Liabilities of discontinued operation

 

 

 

 

 

1,172

 

Total current liabilities

 

 

14,917

 

 

 

6,485

 

Debt, net

 

 

108,399

 

 

 

110,319

 

Other liabilities

 

 

385

 

 

 

367

 

Total liabilities

 

 

123,701

 

 

 

117,171

 

Commitments and contingencies (note 10)

 

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value. 10,000,000 shares authorized, none issued or outstanding

 

 

 

 

 

 

Common stock, $0.01 par value. 50,000,000 shares authorized, 23,644,631 issued and outstanding at September 30, 2020 and 23,312,928 shares issued and outstanding at December 31, 2019

 

 

236

 

 

 

233

 

Additional paid-in capital

 

 

207,345

 

 

 

199,938

 

Accumulated deficit

 

 

(222,714

)

 

 

(206,883

)

Total stockholders’ deficit

 

 

(15,133

)

 

 

(6,712

)

Total liabilities and stockholders’ deficit

 

$

108,568

 

 

$

110,459

 

See accompanying notes to consolidated financial statements.

3

 


 

RECRO PHARMA, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

(amounts in thousands, except share and per share data)

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

$

19,287

 

 

$

25,255

 

 

$

56,586

 

 

$

81,576

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales (excluding amortization of intangible assets)

 

11,741

 

 

 

11,027

 

 

 

41,629

 

 

 

39,518

 

Selling, general and administrative

 

4,418

 

 

 

3,990

 

 

 

14,123

 

 

 

16,028

 

Amortization of intangible assets

 

646

 

 

 

646

 

 

 

1,938

 

 

 

1,938

 

Change in warrant valuation

 

 

 

 

160

 

 

 

 

 

 

938

 

Total operating expenses

 

16,805

 

 

 

15,823

 

 

 

57,690

 

 

 

58,422

 

Operating income (loss) from continuing operations

 

2,482

 

 

 

9,432

 

 

 

(1,104

)

 

 

23,154

 

Interest expense

 

(4,609

)

 

 

(5,057

)

 

 

(14,727

)

 

 

(13,823

)

(Loss) income from continuing operations

 

(2,127

)

 

 

4,375

 

 

 

(15,831

)

 

 

9,331

 

Loss on discontinued operations

 

 

 

 

(8,680

)

 

 

 

 

 

(18,450

)

Net loss

$

(2,127

)

 

$

(4,305

)

 

$

(15,831

)

 

$

(9,119

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income per share information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

$

(0.09

)

 

$

0.19

 

 

$

(0.67

)

 

$

0.42

 

Discontinued operations

 

 

 

 

(0.38

)

 

 

 

 

 

(0.83

)

Total

$

(0.09

)

 

$

(0.19

)

 

$

(0.67

)

 

$

(0.41

)

Weighted average shares outstanding

 

23,641,973

 

 

 

22,505,723

 

 

 

23,538,378

 

 

 

22,231,990

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

$

(0.09

)

 

$

0.18

 

 

$

(0.67

)

 

$

0.40

 

Discontinued operations

 

 

 

 

(0.36

)

 

 

 

 

 

(0.79

)

Total

$

(0.09

)

 

$

(0.18

)

 

$

(0.67

)

 

$

(0.39

)

Weighted average shares outstanding

 

23,641,973

 

 

 

23,650,113

 

 

 

23,538,378

 

 

 

23,102,158

 

See accompanying notes to consolidated financial statements.

4

 


 

RECRO PHARMA, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Deficit

(Unaudited)

 

 

Common stock

 

 

Additional paid-in capital

 

 

Accumulated deficit

 

 

Total

 

(amounts in thousands, except share data)

 

Shares

 

 

Amount

 

 

 

 

 

 

 

Balance, December 31, 2019

 

 

23,312,928

 

 

$

233

 

 

$

199,938

 

 

$

(206,883

)

 

$

(6,712

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,231

 

 

 

 

 

 

3,231

 

Exercise of stock options, net

 

 

37,063

 

 

 

 

 

 

(105

)

 

 

 

 

 

(105

)

Vesting of restricted stock units, net

 

 

105,242

 

 

 

1

 

 

 

(917

)

 

 

 

 

 

(916

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,692

)

 

 

(7,692

)

Balance, March 31, 2020

 

 

23,455,233

 

 

 

234

 

 

 

202,147

 

 

 

(214,575

)

 

 

(12,194

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,446

 

 

 

 

 

 

2,446

 

Exercise of stock options, net

 

 

105,606

 

 

 

1

 

 

 

378

 

 

 

 

 

 

379

 

Vesting of restricted stock units, net

 

 

78,067

 

 

 

1

 

 

 

(31

)

 

 

 

 

 

(30

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(6,012

)

 

 

(6,012

)

Balance, June 30, 2020

 

 

23,638,906

 

 

 

236

 

 

 

204,940

 

 

 

(220,587

)

 

 

(15,411

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,409

 

 

 

 

 

 

2,409

 

Vesting of restricted stock units, net

 

 

5,725

 

 

 

 

 

 

(4

)

 

 

 

 

 

(4

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,127

)

 

 

(2,127

)

Balance, September 30, 2020

 

 

23,644,631

 

 

$

236

 

 

$

207,345

 

 

$

(222,714

)

 

$

(15,133

)

 

 

 

Common stock

 

 

Additional

paid-in capital

 

 

Accumulated

deficit

 

 

 

 

Total

 

(amounts in thousands, except share data)

 

Shares

 

 

Amount

 

 

 

 

 

 

 

Balance, December 31, 2018

 

 

21,799,961

 

 

$

218

 

 

$

168,535

 

 

$

(188,253

)

 

$

(19,500

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,826

 

 

 

 

 

 

2,826

 

Exercise of stock options, net

 

 

29,750

 

 

 

 

 

 

185

 

 

 

 

 

 

185

 

Vesting of restricted stock units, net

 

 

268,915

 

 

 

3

 

 

 

(865

)

 

 

 

 

 

(862

)

Issuance of common stock for equity facility

 

 

34,762

 

 

 

 

 

 

301

 

 

 

 

 

 

301

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(1,978

)

 

 

(1,978

)

Balance, March 31, 2019

 

 

22,133,388

 

 

 

221

 

 

 

170,982

 

 

 

(190,231

)

 

 

(19,028

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,359

 

 

 

 

 

 

2,359

 

Exercise of stock options, net

 

 

206,625

 

 

 

2

 

 

 

907

 

 

 

 

 

 

909

 

Vesting of restricted stock units, net

 

 

74,594

 

 

 

1

 

 

 

(114

)

 

 

 

 

 

(113

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,836

)

 

 

(2,836

)

Balance, June 30, 2019

 

 

22,414,607

 

 

 

224

 

 

 

174,134

 

 

 

(193,067

)

 

 

(18,709

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,741

 

 

 

 

 

 

1,741

 

Exercise of stock options, net

 

 

186,947

 

 

 

2

 

 

 

1,463

 

 

 

 

 

 

1,465

 

Vesting of restricted stock units, net

 

 

12,559

 

 

 

 

 

 

(57

)

 

 

 

 

 

(57

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,305

)

 

 

(4,305

)

Balance, September 30, 2019

 

 

22,614,113

 

 

$

226

 

 

$

177,281

 

 

$

(197,372

)

 

$

(19,865

)

See accompanying notes to consolidated financial statements.

5

 


 

RECRO PHARMA, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Nine months ended September 30,

 

(amounts in thousands)

 

2020

 

 

2019

 

Cash flows from operating activities, continuing operations:

 

 

 

 

 

 

 

 

Net loss

 

$

(15,831

)

 

$

(9,119

)

Loss on discontinued operations

 

 

 

 

 

18,450

 

Adjustments to reconcile income or loss from continuing operations to net cash provided by operating activities, continuing operations:

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

8,086

 

 

 

4,635

 

Non-cash interest expense

 

 

4,222

 

 

 

3,872

 

Depreciation expense

 

 

4,581

 

 

 

4,290

 

Amortization of intangible assets

 

 

1,938

 

 

 

1,938

 

Change in warrant valuation

 

 

 

 

 

938

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

755

 

 

 

(3,351

)

Contract asset

 

 

(877

)

 

 

(5,442

)

Inventory

 

 

3,492

 

 

 

(2,223

)

Prepaid expenses and other assets

 

 

268

 

 

 

(1,033

)

Accounts payable, accrued expenses and other liabilities

 

 

(234

)

 

 

1,287

 

Net cash provided by operating activities, continuing operations

 

 

6,400

 

 

 

14,242

 

Cash flows from investing activities, continuing operations:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(5,451

)

 

 

(7,997

)

Purchases of short-term investments

 

 

 

 

 

(12,020

)

Proceeds from maturity of investments

 

 

 

 

 

12,100

 

Net cash used in investing activities, continuing operations

 

 

(5,451

)

 

 

(7,917

)

Cash flows from financing activities, continuing operations:

 

 

 

 

 

 

 

 

Proceeds from issuance of debt, net of original issue discount of $11,400 for the nine months ended September 30, 2019

 

 

4,416

 

 

 

43,600

 

Repayments of debt

 

 

(1,100

)

 

 

 

Payment of deferred financing costs

 

 

(78

)

 

 

(2,936

)

Net payments related to vesting and exercise of stock-based awards

 

 

(1,185

)

 

 

(1,029

)

Net proceeds related to exercise of stock options

 

 

509

 

 

 

2,552

 

Net cash provided by financing activities, continuing operations

 

 

2,562

 

 

 

42,187

 

Net increase in cash and cash equivalents from continuing operations

 

 

3,511

 

 

 

48,512

 

Discontinued operations:

 

 

 

 

 

 

 

 

Cash flows used in operating activities

 

 

(1,172

)

 

 

(37,271

)

Cash flows used in investing activities

 

 

 

 

 

(1,811

)

Cash flows used in financing activities

 

 

 

 

 

(10,000

)

Net decrease in cash and cash equivalents from discontinued operations

 

 

(1,172

)

 

 

(49,082

)

Cash and cash equivalents, beginning of period

 

 

19,148

 

 

 

38,514

 

Cash and cash equivalents, end of period

 

$

21,487

 

 

$

37,944

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

10,662

 

 

$

10,601

 

Purchases of property, plant and equipment included in accrued expenses and accounts payable

 

 

686

 

 

 

21

 

Common stock issued under equity facility

 

 

 

 

 

301

 

See accompanying notes to consolidated financial statements.

6

 


 

RECRO PHARMA, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(amounts in thousands, except share and per share data)

(Unaudited)

(1)

Background

Recro Pharma, Inc. (the “Company”) was incorporated in Pennsylvania on November 15, 2007. The Company is a leading contract development and manufacturing organization (“CDMO”) with integrated solutions for formulation, analytical services, regulatory support, manufacturing, and packaging of both commercial and development stage oral solid dose drug products. It leverages its formulation and development expertise to develop and manufacture pharmaceutical products using proprietary delivery technologies and know-how for commercial partners who commercialize or plan to commercialize these products. The Company operates in one segment.

In November 2019, the Company’s former Acute Care business, which developed products for hospital and other acute care settings, was spun-out through its former wholly-owned subsidiary, Baudax Bio, Inc. (“Baudax Bio”) when the Company completed a special dividend distribution of all the outstanding shares of common stock of Baudax Bio to its shareholders. See note 3 to the consolidated financial statements for additional information about the spin-off of Baudax Bio.

The Company has incurred net losses since inception and has an accumulated deficit of $222,714 as of September 30, 2020, which is mostly related to activities that are presented as discontinued operations as a result of the spin-off of Baudax Bio. The Company’s future operations are highly dependent on the continued profitability of its manufacturing operations. Management believes that it is probable that the Company will be able to meet its obligations as they become due within one year after the date the financial statements are issued.

(2)

Summary of Significant Accounting Principles

 

(a)

Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. In accordance with SEC rules for interim financial statements, certain information required by U.S. GAAP may be condensed or omitted. The Company’s consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. In the opinion of management, the accompanying consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s results for the interim periods. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.

The accompanying unaudited interim consolidated financial statements should be read in conjunction with the annual audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

 

(b)

Use of Estimates

The preparation of financial statements and the notes to the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates.

 

(c)

Cash and Cash Equivalents

Cash and cash equivalents represent cash in banks and highly liquid short-term investments that have maturities of three months or less when acquired. These highly liquid short-term investments are both readily convertible to known amounts of cash and so near to their maturity that they present insignificant risk of changes in value because of the changes in interest rates.

7

 


 

 

(d)

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, which are as follows: three to ten years for furniture, office and computer equipment; six to ten years for manufacturing equipment; 40 years for buildings; and the shorter of the lease term or useful life for leasehold improvements. Repairs and maintenance costs are expensed as incurred.

 

(e)

Goodwill and Intangible Assets

Goodwill represents the excess of purchase price over the fair value of net assets acquired by the Company. Goodwill is not amortized but assessed for impairment on an annual basis or more frequently if impairment indicators exist. The impairment model prescribes a one-step method for determining impairment.

The one-step quantitative test calculates the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

Intangible assets include the Company’s royalties and contract manufacturing relationships assets. The royalties and contract manufacturing relationships intangible asset is considered a definite-lived intangible asset and is amortized on a straight-line basis over a useful life of six years. The Company is required to review the carrying value of definite-lived intangible assets for recoverability whenever events occur or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

The Company performs its annual goodwill impairment test as of November 30th, or whenever an event or change in circumstances occurs that would require reassessment of the recoverability of goodwill. In performing the evaluation, the Company assesses qualitative factors such as overall financial performance, anticipated changes in industry and market conditions, and competitive environments. The Company performed its last annual impairment test as of November 30, 2019.

Since the last annual test, the Company has identified the ongoing novel strain of coronavirus (“COVID-19”) pandemic as a potential indicator of impairment. The Company has performed periodic interim impairment testing that has resulted in no impairment of goodwill or other assets. The Company continues to monitor the impact of the COVID-19 pandemic.

 

(f)

Revenue Recognition

The Company generates revenues from manufacturing, packaging, research and development and related services for multiple pharmaceutical companies. The agreements that the Company has with its commercial partners provide for manufacturing revenues, sales-based royalties and/or profit-sharing components.

Manufacturing Revenue

Manufacturing and other related services revenue is recognized upon transfer of control of a product to a customer, generally upon shipment, based on a transaction price that reflects the consideration the Company expects to be entitled to as specified in the agreement with the commercial partner, which could include pricing and volume-based adjustments.

8

 


 

Royalty Revenue

In addition to manufacturing and packaging revenue, certain customer agreements may have intellectual property sales-based royalties and/or profit-sharing consideration, collectively referred to as royalties, computed on the net product sales of the commercial partner. Royalty revenues are generally recognized under the terms of the applicable license, development and/or supply agreement. For arrangements that include sales-based royalties where the license for intellectual property is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue when the related sales occur by the commercial partner. For arrangements that include sales-based royalties where the license for intellectual property is not deemed to be the predominant item to which the royalties relate, the Company recognizes revenue upon transfer of control of the manufactured product. In these cases, significant judgment is required to calculate this estimated variable consideration using the most-likely amount method based on historical customer pricing and deductions and is partially constrained due to items that are outside of the Company’s control including the uncertainty of the timing of future commercial partner sales, mix of volume, customer stocking and ordering patterns, as well as unforeseen price adjustments made by the Company’s commercial partners.

Research and Development

Research and development revenue includes services associated with formulation, process development, clinical trials materials services, as well as custom development of manufacturing processes and analytical methods for a customer’s non-clinical, clinical and commercial products. Such revenues are recognized at a point in time or over time depending on the nature and particular facts and circumstances associated with the contract terms.

In contracts that specify milestones, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. Milestone payments related to arrangements under which we have continuing performance obligations would be deferred and recognized over the period of performance. Milestone payments that are not within our control, such as submission for approval to regulators by a commercial partner or approvals from regulators, are not considered probable of being achieved until those submissions are submitted by the customer or approvals are received.

In contracts that require revenue recognition over time, the Company utilizes input or output methods, depending on the specifics of the contract, that compare the cumulative work-in-process to date to the most current estimates for the entire performance obligation. Under these contracts, the customer typically owns the product details and process, which have no alternative use. These projects are customized to each customer to meet its specifications and typically only one performance obligation is included. Each project represents a distinct service that is sold separately and has stand-alone value to the customer. The customer also retains control of its product as the product is being created or enhanced by the Company’s services and can make changes to its process or specifications upon request.

 

(g)

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash, cash equivalents and accounts receivable. The Company manages its cash and cash equivalents based on established guidelines relative to diversification and maturities to maintain safety and liquidity.

The Company’s accounts receivable balances are primarily concentrated among four customers. If any of these customers’ receivable balances should be deemed uncollectible, it could have a material adverse effect on the Company’s results of operations and financial condition.

The Company is dependent on its relationships with a small number of commercial partners, with its four largest customers having generated 90% or more of its revenues for the periods presented. A portion of the Company’s revenues are dependent on U.S. based customers selling to end-users outside the United States.

 

(h)

Stock-based Compensation Expense

The Company measures employee stock-based awards at grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award. The Company accounts for forfeitures as they occur.

9

 


 

Determining the appropriate fair value of stock options requires the input of subjective assumptions, including the expected life of the option and expected stock price volatility. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and/or management uses different assumptions, stock-based compensation expense could be materially different for future awards.

The expected life of stock options was estimated using the “simplified method,” as the Company has limited historical information to develop reasonable expectations about future stock option exercise patterns, which is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, the Company uses the historical volatility of its publicly traded stock in order to estimate future stock price trends. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option.

Upon exercise of stock options or vesting of restricted stock units, the holder may elect to cover tax withholdings by forfeiting shares of an equivalent value. In such cases, the Company issues net new shares to the holder, pays the tax withholding on behalf of the participant and presents the payment similar to a capital distribution as both a reduction to additional paid-in-capital and a financing cash outflow in the consolidated financial statements.

For non-employee stock-based awards, the Company recognizes compensation expense on a straight-line basis over the vesting period of each separated vesting tranche of the award, which is known as the accelerated attribution method. The estimation of the number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts are recognized as an adjustment in the period in which estimates are revised.

 

(i)

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is recorded to the extent it is more likely than not that some portion or all of the deferred tax assets will not be realized. A full valuation allowance was recorded as of September 30, 2020 and December 31, 2019.

Unrecognized income tax benefits represent income tax positions taken on income tax returns that have not been recognized in the consolidated financial statements. The Company recognizes the benefit of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit is recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company does not anticipate significant changes in the amount of unrecognized income tax benefits over the next year.

 

(j)

Income or Loss Per Share

Basic income or loss per common share is determined by dividing net income or loss (the numerator) by the weighted average common shares outstanding during the period (the denominator).

To calculate diluted income or loss per common share, the numerator and denominator are adjusted to eliminate the income or loss and the dilutive effects on shares, respectively, caused by outstanding common stock options, warrants and unvested restricted stock units, using the treasury stock method, if the inclusion of such instruments would be dilutive.

10

 


 

For the periods presented, only the denominators of the 2019 basic per share results were adjusted for the dilutive effects described above. The following table presents those effects:

 

Three months ended September 30, 2019

 

 

Nine months ended September 30, 2019

 

Weighted average shares outstanding, basic

 

22,505,723

 

 

 

22,231,990

 

Dilutive impact of:

 

 

 

 

 

 

 

Restricted stock units

 

372,338

 

 

 

326,330

 

Stock options

 

642,255

 

 

 

453,470

 

Warrants

 

129,797