Recro Pharma, Inc. (“Recro”; NASDAQ: REPH), a contract development
and manufacturing organization (CDMO) dedicated to solving complex
formulation and manufacturing challenges for companies developing
oral solid dose drug products, today announced its acquisition of
IRISYS, a San Diego-based CDMO that possesses capabilities that
complement and expand those of Recro. Recro acquired IRISYS for
approximately $50 million in a combination of cash, shares of Recro
common stock and a seller promissory note. With its acquisition of
IRISYS, Recro has transformed itself into a full service CDMO with
operations on both the East and West Coast of the U.S. capable of
offering its now expanded global client base access to services
spanning from pre-Investigational New Drug (IND) development to
commercial manufacturing and packaging for wide range of dosage
forms.
“Today’s acquisition of IRISYS is truly a
transformative transaction for Recro. The joining of these two
companies creates an organization that is ideally positioned to
achieve Recro’s previously disclosed four-pronged strategy for
growth, which includes strengthening the organization’s leadership
and talent, expanding and diversifying our client base, fortifying
our financial position, and enhancing our capabilities and
competencies,” said David Enloe, president and chief executive
officer of Recro. “Adding the personnel, facilities, capabilities
and global customer base of IRISYS advances each of these goals and
positions Recro for sustainable, profitable growth moving forward.
We welcome the members of the IRISYS team to the Recro family and
are eager to begin implementing the integration of the
companies.”
IRISYS is a full service CDMO based in San
Diego, CA with capabilities that range from formulation development
to commercial manufacturing for various dosage forms including oral
liquids, sterile injectables, tablets, topicals, liquid/powder
filled capsules, ophthalmic droppers, liposomes and
nano/microparticles. IRISYS serves a diverse, global client base
within the biopharmaceutical industry with its nearly 40 clients
located in six different countries around the world. This includes
manufacturing support for four commercial and near-commercial
products. Importantly, IRISYS recently added automated, aseptic
fill/finish and lyophilization capabilities to its existing
facility, offering a new key avenue for significant near-term
growth. IRISYS expects to generate $15.4 million in revenue for
full year 2021 and has approximately $23 million spanning its
contracted backlog and vetted sales pipeline.
Strategic Rationale
Recro’s acquisition of IRISYS was driven by a
number of compelling factors covering the four prongs of the
company’s ongoing growth strategy.
Enhances Capabilities and Competencies:
- Expands technical focus beyond oral
solid dose to include sterile injectables oral liquids, tablets,
topicals, liquid/powder filled capsules, ophthalmic droppers,
liposomes and nano/microparticles;
- Adds new capabilities in the areas
of aseptic fill/finish and lyophilization; and
- Establishes bi-coastal footprint
from which to better serve clients within the U.S., as well as
globally.
Expands and Diversifies Client Base:
- Adds more than three dozen clients
spanning six countries, reducing Recro’s customer dependency
risk;
- Provides greater balance between
our clinical and commercial project mix; and
- Diversifies portfolio from
exclusively oral solid dose to a balance of multiple advanced
dosage forms and oral solid dose.
Strengthens Leadership and Talent:
- Supplements Recro’s seasoned
leadership team with strong scientific talent credited with driving
success at IRISYS; and
- Provides access to West Coast human
capital hotbed.
Fortifies Financial Position:
- Adds profitable business with
IRISYS full year 2021 estimated revenues of $15.4 million, net
income of $2.1 million and EBITDA* of $2.8 million; the
corresponding anticipated improvement in Recro’s EBITDA will be
beneficial to Recro’s debt covenants under its credit agreement.
Recro intends to provide updated financial guidance when it
releases third quarter 2021 earnings;
- Offers significant revenue
diversification, reducing financial reliance on any particular
client or service offering;
- Becomes accretive by the fourth
quarter of 2021, excluding integration costs; and
- Enables transaction-related paydown
of credit facility and an extension of the due date, leading to
improved cash flow.
In addition to the advancement of the company’s
four-pronged growth strategy, the acquisition was also driven by
key synergies between Recro and IRISYS within business development,
clinical development and commercial scale-up, as well as a strong
cultural alignment and fit between the companies.
*EBITDA is a non-GAAP financial measure (see
Non-GAAP Financial Measures in this release).
Transaction Details
Under terms of the agreement, Recro has acquired
100% of the equity interests of IRISYS in exchange for
consideration having an aggregate value of approximately $49.850
million. The purchase price was paid through: (i) $25.5 million of
cash at closing; (ii) 9,302,718 shares of common stock of Recro to
be issued in six months; and (iii) a seller promissory note of $6.1
million. The seller note has a three (3) year maturity date from
the date of closing and bears interest at a rate of 6% annually.
The seller note is expressly subordinated and unsecured in right of
payment and priority to Recro’s existing debt with Athyrium Capital
Management.
Bailey Southwell & Co. served as the
exclusive financial advisor to IRISYS. William Blair & Company,
L.L.C. represented Recro on the transaction.
Non-GAAP Financial
MeasuresCertain financial measures of IRISYS presented in
this press release, including EBITDA, were not calculated using
U.S. generally accepted accounting principles (“GAAP”). We believe
these financial measures are helpful in understanding IRISYS’
business because it allows for greater transparency of supplemental
information used by Recro’s management in connection with the
acquisition of IRISYS. These measures are used by investors, as
well as Recro’s management, in assessing IRISYS’ past and potential
future performance. Non-GAAP financial measures should be
considered in addition to, but not as a substitute for, reported
GAAP results. Further, Non-GAAP financial measures, even if
similarly titled, may not be calculated in the same manner by all
companies, and therefore should not be compared. Please see the
section of this press release titled “IRISYS, LLC Reconciliation of
GAAP to Non-GAAP Financial Measures” for a reconciliation of
Non-GAAP EBITDA, to its most directly comparable GAAP measure.
About RecroRecro (NASDAQ: REPH)
is a contract development and manufacturing organization (CDMO)
with capabilities from early feasibility to commercial
manufacturing. With an expertise in solving complex manufacturing
problems, Recro is a CDMO providing oral solid dosage form
development, end-to-end regulatory support, clinical and commercial
manufacturing, and packaging and logistics services to the global
pharmaceutical market.
In addition to our experience in handling DEA
controlled substances and developing and manufacturing modified
release oral solid dosage forms, Recro has the expertise to deliver
on our clients’ pharmaceutical development and manufacturing
projects, regardless of complexity level. We do all of this in our
best-in-class facilities, which total 120,000 square feet, in
Gainesville, Georgia.
For more information about Recro’s CDMO
solutions, visit recrocdmo.com.
Forward-Looking StatementsThis
press release includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. These statements, among
other things, the Company’s expectations regarding, the potential
benefits of the acquisition of IRISYS, and other statements. The
words “anticipate”, “believe”, “could”, “estimate”, “upcoming”,
“expect”, “intend”, “may”, “plan”, “predict”, “project”, “will” and
similar terms and phrases may be used to identify forward-looking
statements in this press release. Factors that could cause the
company’s actual outcomes to differ materially from those expressed
in or underlying these forward-looking statements include risks
that the results and potential of the combined business and the
combination IRISYS’ business with the Company’s business may not be
as anticipated; the ongoing economic and social consequences of the
COVID-19 pandemic, including any adverse impact on the customer
ordering patterns or inventory rebalancing or disruption in raw
materials or supply chain; demand for the company’s services, which
depends in part on customers’ research and development and the
clinical plans and market success of their products; customers’
changing inventory requirements and manufacturing plans; customers
and prospective customers decisions to move forward with the
company’s manufacturing services; the average profitability, or
mix, of the products the company manufactures; the company’s
ability to enhance existing or introduce new services in a timely
manner; fluctuations in the costs, availability, and suitability of
the components of the products the company manufactures, including
active pharmaceutical ingredients, excipients, purchased components
and raw materials, or the company’s customers facing increasing or
new competition. These forward-looking statements should be
considered together with the risks and uncertainties that may
affect our business and future results presented herein along with
those risks and uncertainties discussed in our filings with the
Securities and Exchange Commission at www.sec.gov. These
forward-looking statements are based on information currently
available to us, and we assume no obligation to update any
forward-looking statements except as required by applicable
law.
IRISYS, LLCReconciliation of
GAAP to Non-GAAP Financial Measures(Unaudited)
To supplement the financial results of IRISYS,
LLC (“IRISYS”) determined by U.S. generally accepted accounting
principles (“GAAP”), the tables below provide the
following Non-GAAP information about EBITDA.
EBITDA is net income or loss as determined under
GAAP excluding interest and depreciation. We believe
that Non-GAAP financial measures are helpful in understanding
the business of IRISYS, as it is useful to investors in allowing
for greater transparency of supplemental information used by our
management in connection with the acquisition of IRISYS. EBITDA is
used by investors, as well as our management in assessing IRISYS’
past and potential future performance. Non-GAAP financial
measures should be considered in addition to, but not as a
substitute for, GAAP results. Further, Non-GAAP financial measures,
even if similarly titled, may not be calculated in the same manner
by all companies, and therefore should not be compared.
Full year guidance
|
|
Twelve months ended December 31, |
|
(amounts in millions) |
|
2021 |
|
|
|
(estimate) |
|
Net loss (GAAP) |
$ |
2.1 |
|
Interest expense/(income) |
|
0.1 |
|
Depreciation |
|
0.6 |
|
EBITDA |
$ |
2.8 |
|
Contacts:
Stephanie Diaz (Investors)
Vida Strategic Partners
415-675-7401
sdiaz@vidasp.com
Tim Brons (Media)
Vida Strategic Partners
415-675-7402
tbrons@vidasp.com
Ryan D. Lake (CFO)
Recro
770-531-8365
ryan.lake@recroCDMO.com
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