Shares of Gainesville, Georgia-based Recro Pharmaceuticals (NASDAQ:REPH) fell nearly 25% today after the company reported disappointing second quarter financial results. Revenues fell 50% to $15.5 million mostly due to lower product sales and royalties from three of its commercial partners. The slowed start of new projects due to the impact of the COVID-19 crisis also weighed on performance.
The decline in Recro’s cost of sales was not proportionate to the revenue decline as fixed costs were spread over lower commercial volumes. This led to a higher net loss of $6 million compared to the $2.8 million net loss in the same period of last year. The company exited the quarter with a cash position of $22.8 million.
Recro is a contract development and manufacturing organization (CDMO) that specializes in manufacturing and packaging solid oral drugs for various pharmaceutical companies. It uses proprietary delivery technologies to help develop products for partners who plan commercialize.
CEO Gerri Henwood commented, “During the second quarter, the effects of the pandemic continued to have an adverse impact on our revenues…As we navigate through these challenging times, we remain steadfast in our commitment to delivering important development stage and commercial medicines.”
Clinical trial business launch, new development agreements are silver linings
Management noted that despite the pandemic-related challenges its business is stable. It launched a new clinical trial materials (CTM) business during the quarter in response to the recent industry growth in the CTM area. It will offer on-demand services for trial design and direct-to-patient logistics. These services are expected to include non-clinical formulation, Active Pharmaceutical Ingredient (API) characterization, manufacturing, and packaging for clinical trials.
Recro also progressed its customer base during the period. It signed an exclusive development agreement with an undisclosed top 20 pharmaceutical company to develop a high potency oral product. It is also in the process of negotiating a development agreement to produce another high potency marketed product for a different top pharmaceutical company.
The new business adds to Recro’s diversified customer base which includes well-known pharmaceutical companies such as Novartis, Teva, Lannett, and Currax.
The company said that it expects the pandemic to continue to impact its customers over the next few quarters. Based on a review of third-party sales information it anticipates further volatility as prescription volumes fluctuate across most therapeutic categories.
Fewer patient visits along with increased patient access to telehealth are expected to contribute to a decrease in new and refill prescription rates. A reversion to increased stay-at-home orders also has the potential to reduce prescription levels and hurt the business. Citing the uncertainty around the current environment, Recro chose to withdraw and suspend its 2020 financial guidance.
The manufacturing specialist has had a rough year thus far in 2020. After seeing its shares reach an all-time high of $19.21 in February, Recro’s stock now trades near an all-time low below $4 per share.