Recro Pharma (REPH) Misses Q1 EPS by 30c, Revenues Beat; Offers FY20 Revenue Guidance Below Consensus

Recro Pharma (NASDAQ: REPH) reported Q1 EPS of ($0.33), $0.30 worse than the analyst estimate of ($0.03). Revenue for the quarter came in at $21.78 million versus the consensus estimate of $19.45 million.

“In this challenging and unprecedented time, U.S. pharmaceutical product manufacturing has never been more essential, and we continue to provide important medicines to our customers, a number of whom are on the front lines of this crisis helping patients,” said Gerri Henwood, President and Chief Executive Officer of Recro. “In 2020, we experienced multiple challenges that impacted our revenues, including increased competition from one of our key customer’s competitors, as well as indirect and direct effects of COVID-19. We are revising our 2020 guidance to now be in the range of $80-85 million. We remain focused on executing on our strategic priorities while prudently managing the business through this rapidly evolving economic situation.”

COVID-19 Response

During this pandemic, Recro remains committed to our employees and their families, our customers, our suppliers, shareholders and our business partners. Under Pennsylvania and Georgia state and local “shelter-in-place” orders, as a pharmaceutical manufacturer, Recro falls within the category of healthcare operations, which are essential businesses that need to continue during the COVID-19 outbreak. While we are committed to continue providing essential pharmaceutical products to our customers, we are also taking all necessary measures to protect the health and safety of our employees. We have assembled an internal COVID-19 task force to address the continually updated guidance from local, national and international sources to ensure our operations are responding appropriately to the crisis.

GUIDANCE:

Recro Pharma sees FY2020 revenue of $80-85 million, versus the consensus of $98.26 million.

For 2020, the Company is revising its guidance as a result of recent developments, including:

• Increased competition from one of our key customer’s competitors for certain product strengths that had previously been out of the market was trending at an approximate 30% of market share level, but recently has recovered to a greater sustained percentage of approximately 50% market share. This has impacted both anticipated future manufacturing volumes and profit sharing;
• Slower than expected new business growth, which we believe is primarily attributable COVID-19. COVID-19 has required different ways of meeting and contacting customers, and has slowed customer access, and caused reassessment of plans for development services by some customers and prospects for a variety of reasons, such as concerns about availability of development funding, timing of clinical trials, etc.; and
• Notifications by two of our customers of discontinuations for two commercial product lines, that resulted in a decrease of approximately $4 million on previous 2020 revenue guidance and is estimated to have an annual impact to 2021 revenue of approximately $7 million to $8 million.

As a result of these recent events, operating improvement initiatives that have been executed as a result of lower anticipated manufacturing volumes for 2020, including a 10% reduction in force during the first quarter, is estimated to provide an annual savings of approximately $2 million in fiscal year 2021. Additional cost saving measures are planned and continue to be assessed.

The Company believes these unexpected events are a result of increased competition, coupled with the direct and indirect impacts that COVID-19 is having on existing and new customers, resulting in lowered expectations for 2020. The Company now expects its 2020 revenue to be in the range of $80-$85 million, taking into consideration existing market forces, contracts, timing of customer order patterns, customer inventory rebalancing, competition, potential impacts of COVID-19, as well as our experience with customer’s product market estimations and timing related to growing and diversifying the Company’s new business development services revenue along with the impact of customer access and operating improvement decisions and timings, and the Company’s current beliefs and estimations with respect to new business generation. The Company expects its Operating Income to be in the range of $5 million to $9 million and Operating income, as adjusted* to be in the range of $13 million to $17 million. EBITDA, as adjusted (Historical CDMO) to be in the range of $33 million to $37 million and EBITDA, as adjusted (Standalone)* to be in the range of $26 million to $30 million. The Company remains committed to capturing and delivering its upside long-term potential.

For earnings history and earnings-related data on Recro Pharma (REPH) click here.

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