Natesto SNDS, Estrace shortage in Canada impacts Acerus’ revenue decline in Q1 2020
May 12, 2020TORONTO–(BUSINESS WIRE)–Acerus Pharmaceuticals Corporation (“Acerus” or the “Company”) (TSX: ASP; OTCQB: ASPCF) today reported its financial results for the three-month period ended March 31, 2020 (“Q1-2020), as total Q1-2020 revenue was $0.1 million compared with $2.2 million of revenue in Q1-2019. The revenue decline reflects the following impact of the previously announced Natest SNDS and Estrace shortage in the Canadian market, Acerus said.
Unless otherwise noted, all amounts are in US dollars and are prepared in accordance with International Financial Reporting Standards (“IFRS”).
Q1-2020 Highlights
- Refinancing transactions provide $18 million of new capital to support US growth strategy
- $12 million of debt and accrued interest converted to equity
- Company continues to build its US organization in anticipation of post Covid-19 recovery
- Natesto® spermatogenesis study accepted for publication in the Journal of Urology
- Dr. Geoff Cotton joins Board of Directors on May 4, 2020
“Even with the impact of the Covid-19 pandemic we continue to position Acerus for the execution of our US strategy in conjunction with our partners Syneos Health and Aytu Bioscience,” said Ed Gudaitis, President and Chief Executive Officer of Acerus. “We made significant progress in the past quarter building our US Commercial and Medical Affairs organizations. We have launched our National Accounts team in the quarter and we are actively engaged with US payers. In response to the COVID-19 situation, we have implemented a working group evaluating how best to engage healthcare providers as States ease their shelter in place orders. We are also making progress with Natesto® production so that we can return Natesto® to the Canadian and South Korean markets.”
Summary of Results for the Three Months Ended March 31, 2020 (compared to the Three Months Ended March 31, 2019 unless otherwise noted)
Total Q1-2020 revenue was $0.1 million compared with $2.2 million of revenue in Q1-2019. The revenue decline reflects the following impact of the previously announced Natesto® SNDS and Estrace® shortage in the Canadian market. In addition, Q1-2019 also reflected a one-time adjustment of $0.7 million to recognize revenue with respect to Natesto® units previously sold to our licensing partner and $0.2 million of UrivarxTM revenue. Canadian distribution rights for this product were returned to the licensor in Q2 of 2019.
Q1-2020 gross margin was negative $0.1 million compared with $1.5 million in Q1-2019 reflecting the reduced revenue in Q1-2020 and the impact of fixed costs in cost of sales applied to a lower revenue base.
Research and development (“R&D”) expenses decreased by $0.4 million to $0.6 million for the current quarter compared to Q1-2019 reflecting reduced R&D activity in the Canadian and US market. Management does expect R&D activity to accelerate in the balance of 2020 as the United States business ramps up.
Selling, general and administrative expenses (“SG&A”) decreased by $0.6 million to $3.6 million from $4.2 million in the prior year period. This decline in SG&A is principally due to a non-cash impairment charge in Q1-2019 of $2.5 million on the value of the Estrace® intangible asset offset by an increase of $2.1 million in Q1-2020 related to the stand-up of the United States organization to implement the US Natesto® strategy.
Q1-2020 Earnings before interest, tax, depreciation and amortization (“EBITDA”)1 was a loss of $3.8 million compared to a loss of $3.3 million for the prior year quarter. Adjusted EBITDA1, was a loss of $4.0 million for the quarter compared to a loss of $0.8 million for the prior year period.
The Company incurred a net loss of $4.7 million or $(0.01) per share for the quarter compared to a loss of $4.4 million or $(0.02) per share for the first quarter of 2019.
Cash as of March 31, 2020 was $18.2 million compared with $5.9 million on December 31, 2019, reflecting an $18 million private placement that closed in February of 2020 (see below).
COVID-19 & US launch readiness
Further to the Company’s press release of April 2, 2020, Acerus is still seeing a significant impact in the global business model and the Company expects the return to be gradual as jurisdictions slowly reopen their markets.
At the same time, Acerus, in combination with its US contract commercial provider Syneos Health, is working remotely to build out our US commercial (marketing, sales and national accounts) and US medical (medical science liaisons) organizations so that we are ready to rapidly start promotion of Natesto®. National Accounts and Sales managers have been hired and are positioning the Company for the rapid launch.
Q1-2020 Refinancing transactions
On February 21, 2020, the Company completed a series of transactions with First Generation Capital Inc. (“First Generation”) with the goal of providing additional capital to realize on its US growth strategy. First Generation is currently the Company’s largest shareholder to the Company and an entity owned and controlled by Mr. Ian Ihnatowycz, Chairman of the board of directors (the “Board”) of the Company. As part of the transactions, Acerus:
- received US$18 million in gross proceeds from the private placement of 449,148,891 common shares of the Company (the “Common Shares”) to First Generation; and
- converted US$11.5 million (plus accrued interest of US$0.5 million) owing to First Generation under the subordinated secured term loan facility with First Generation previously entered into on July 19, 2019 as amended and restated on December 18, 2019 into 300,081,885 Common Shares.
These transactions were negotiated on an arm’s-length basis, including under the supervision of and upon a recommendation by, a special committee of the Board comprised of entirely independent directors unrelated to the parties involved. The special committee had retained Echelon Wealth Partners (“Echelon”) as its financial advisor. Echelon issued a fairness opinion on February 12, 2020 that the above transactions were fair, from a financial point of view, to shareholders of the Company other than First Generation. Additional information on these transactions can be found in our press releases of February 12 and 21, 2020.
Conference Call
Shareholders are reminded that the conference call to discuss the Company’s results for the three months ended March 31, 2020 will be held on Tuesday, May 12, 2020 at 8:30 a.m. Eastern Time. To access the call live, please dial 416-406-0743 or 1-800-898-3989 and use access code 8842272#. Listeners are encouraged to dial in 10 minutes before the call begins to avoid delays.
A replay of the conference call will be available until 11:59 p.m. Eastern Time on Tuesday, May 19, 2020 by dialing 905-694-9451 or 1-800-408-3053, using access code: 5893931#.
About Acerus
Acerus Pharmaceuticals Corporation is a Canadian-based specialty pharmaceutical company focused on the commercialization and development of innovative prescription products that improve patient experience, with a primary focus in the field of men’s health. The Company commercializes its products via its own salesforce in the United States and Canada, and through a global network of licensed distributors in other territories.
Acerus’ shares trade on TSX under the symbol ASP and on OTCQB under the symbol ASPCF. For more information, visit www.aceruspharma.com and follow us on Twitter and LinkedIn.
1 Non-IFRS Financial Measures – EBITDA and Adjusted EBITDA
The non-IFRS measures included in this press release are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other issuers. When used, these measures are defined in such terms as to allow the reconciliation to the closest IFRS measure. These measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from our perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. Despite the importance of these measures to management in goal setting and performance measurement, we stress that these are non-IFRS measures that may have limits in their usefulness to investors.
We use non-IFRS measures, such as EBITDA and Adjusted EBITDA to provide investors with a supplemental measure of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS financial measures. We also believe that securities analysts, investors and other interested parties frequently use non-IFRS measures in the valuation of issuers. We also use non-IFRS measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets, and to assess our ability to meet our future debt service, capital expenditure and working capital requirements.
The definition and reconciliation of EBITDA and Adjusted EBITDA used and presented by the Company to the most directly comparable IFRS measures follows below:
EBITDA is defined as net (loss)/income adjusted for income tax, depreciation of property and equipment, amortization of intangible assets, interest on long-term debt and other financing costs, interest income, licensing revenue and changes in fair values of derivative financial instruments. Management uses EBITDA to assess the Company’s operating performance.
Adjusted EBITDA is defined as EBITDA adjusted for, as applicable, royalty expenses associated with triggering events, milestones, share based compensation, impairment of intangible asset, foreign exchange (gain)/loss and gain on extinguishment of payables. We use Adjusted EBITDA as a key metric in assessing our business performance when we compare results to budgets, forecasts and prior years. Management believes Adjusted EBITDA is an alternative measure of cash flow generation than, for example, cash flow from operations, particularly because it removes cash flow fluctuations caused by extraordinary changes in working capital. A reconciliation of net (loss)/income to EBITDA (and Adjusted EBITDA) is set out below.
|
For the three months ended March 31, |
||||||||||
|
2020 |
2019 |
|||||||||
| Net (loss) |
$ |
(4,663 |
) |
$ |
(4,431 |
) |
||||
| Adjustments: | ||||||||||
| Amortization of intangible assets |
|
179 |
|
|
289 |
|
||||
| Depreciation of property and equipment |
|
64 |
|
|
64 |
|
||||
| Depreciation of right of use asset |
|
12 |
|
|
12 |
|
||||
| Interest on long-term debt and other financing costs* |
|
846 |
|
|
647 |
|
||||
| Interest income |
|
(31 |
) |
|
(1 |
) |
||||
| Change in fair value of derivative |
|
(163 |
) |
|
132 |
|
||||
| EBITDA |
$ |
(3,756 |
) |
$ |
(3,288 |
) |
||||
| Share based compensation |
|
45 |
|
|
80 |
|
||||
| Foreign exchange (gain) |
|
(244 |
) |
|
(90 |
) |
||||
| Impairment loss on intangible asset |
|
– |
|
|
2,471 |
|
||||
| Adjusted EBITDA |
$ |
(3,955 |
) |
$ |
(827 |
) |
||||
Notice Regarding Forward-Looking Statements
Information in this press release that is not current or historical factual information may constitute forward looking information within the meaning of securities laws. Implicit in this information are assumptions regarding our future operational results. These assumptions, although considered reasonable by the company at the time of preparation, may prove to be incorrect. Readers are cautioned that actual performance of the company is subject to a number of risks and uncertainties, including with respect to the commercial performance of NATESTO® globally and in the U.S. and the impact of COVID-19 on such performance, and could differ materially from what is currently expected as set out above. In particular, these assumptions include but are not limited to, the following: the COVID-19 pandemic will not affect our business plan and that of our suppliers, the COVID-19 pandemic will not last many months and health care professionals will be available to hear about our products and to continue education programs related to them. For more exhaustive information on these risks and uncertainties you should refer to our annual information form dated March 3, 2020 which is available at www.sedar.com. Forward-looking information contained in this press release is based on our current estimates, expectations and projections, which we believe are reasonable as of the current date. You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While we may elect to, we are under no obligation and do not undertake to update this information at any particular time, whether as a result of new information, future events or otherwise, except as required by applicable securities law.
| Acerus Pharmaceuticals Corporation Condensed Interim Consolidated Statements of Financial Position As at March 31, 2020 and December 31, 2019 Unaudited (expressed in thousands of U.S. dollars) |
||||||||||
|
March 31, 2020 |
December 31, 2019 |
|||||||||
| ASSETS | ||||||||||
| Current assets | ||||||||||
| Cash |
$ |
18,242 |
|
$ |
5,860 |
|
||||
| Trade and other receivables |
|
180 |
|
|
171 |
|
||||
| Contract asset |
|
403 |
|
|
473 |
|
||||
| Inventory |
|
1,736 |
|
|
1,494 |
|
||||
| Prepaid and other assets |
|
2,213 |
|
|
1,237 |
|
||||
| Total current assets |
|
22,774 |
|
|
9,235 |
|
||||
| Property and equipment, net |
|
987 |
|
|
1,051 |
|
||||
| Right of use asset |
|
251 |
|
|
263 |
|
||||
| Intangible assets, net |
|
4,712 |
|
|
4,891 |
|
||||
| Total assets |
$ |
28,724 |
|
$ |
15,440 |
|
||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY) | ||||||||||
| Current liabilities | ||||||||||
| Accounts payable and accrued liabilities |
$ |
7,556 |
|
$ |
7,408 |
|
||||
| Current portion of long-term debt |
|
91 |
|
|
– |
|
||||
| Current portion of lease liability |
|
94 |
|
|
101 |
|
||||
| Total current liabilities |
|
7,741 |
|
|
7,509 |
|
||||
| Lease liability |
|
443 |
|
|
510 |
|
||||
| Long-term debt |
|
8,116 |
|
|
19,990 |
|
||||
| Derivative financial instruments |
|
142 |
|
|
262 |
|
||||
| Total liabilities |
|
16,442 |
|
|
28,271 |
|
||||
| Shareholders’ equity (deficiency) | ||||||||||
| Share capital |
$ |
188,133 |
|
$ |
158,402 |
|
||||
| Warrants |
|
1,420 |
|
|
1,420 |
|
||||
| Contributed surplus |
|
11,406 |
|
|
11,361 |
|
||||
| Accumulated other comprehensive loss |
|
(13,949 |
) |
|
(13,949 |
) |
||||
| Deficit |
|
(174,728 |
) |
|
(170,065 |
) |
||||
| Total shareholders’ equity (deficiency) |
|
12,282 |
|
|
(12,831 |
) |
||||
| Total liabilities & shareholders’ equity (deficiency) |
$ |
28,724 |
|
$ |
15,440 |
|
||||
|
Acerus Pharmaceuticals Corporation Condensed Interim Consolidated Statements of Loss and Comprehensive Loss For the three months ended March 31, 2020 and 2019 Unaudited (expressed in thousands of U.S. dollars, except per share and share data) |
||||||||||
|
March 31, 2020 |
March 31, 2019 |
|||||||||
| Product revenue |
$ |
145 |
|
$ |
2,165 |
|
||||
| Cost of goods sold |
|
201 |
|
|
632 |
|
||||
| Gross margin (loss) |
|
(56 |
) |
|
1,533 |
|
||||
| Expenses | ||||||||||
| Research and development |
|
622 |
|
|
1,038 |
|
||||
| Selling, general and administrative |
|
3,577 |
|
|
4,238 |
|
||||
| Total operating expenses |
|
4,199 |
|
|
5,276 |
|
||||
| Operating loss |
|
(4,255 |
) |
|
(3,743 |
) |
||||
| Other expenses/(income) | ||||||||||
| Interest on long-term debt and other financing costs |
|
846 |
|
|
647 |
|
||||
| Interest income |
|
(31 |
) |
|
(1 |
) |
||||
| Foreign exchange (gain)/loss |
|
(244 |
) |
|
(90 |
) |
||||
| Change in fair value of derivative financial instruments |
|
(163 |
) |
|
132 |
|
||||
| Total other expenses |
|
408 |
|
|
688 |
|
||||
| Net loss for the period |
$ |
(4,663 |
) |
$ |
(4,431 |
) |
||||
| Other comprehensive income, net of income tax | ||||||||||
| Foreign currency translation adjustment |
|
– |
|
|
56 |
|
||||
| Total comprehensive loss for the period |
$ |
(4,663 |
) |
$ |
(4,375 |
) |
||||
| Loss per common share | ||||||||||
| Basic and diluted net loss per common share |
$ |
(0.01 |
) |
$ |
(0.02 |
) |
||||
| Weighted average common shares outstanding | ||||||||||
| Basic and diluted |
|
656,423,941 |
|
|
235,900,501 |
|
||||
| Diluted |
|
656,423,941 |
|
|
235,900,501 |
|
||||
|
Acerus Pharmaceuticals Corporation Condensed Interim Consolidated Statements of Cash Flows For the three months ended March 31, 2020 and 2019 Unaudited (expressed in thousands of U.S. dollars) |
||||||||||
|
March 31, 2020 |
March 31, 2019 |
|||||||||
| Operating activities: | ||||||||||
| Net loss for the period |
$ |
(4,663 |
) |
$ |
(4,431 |
) |
||||
| Items not affecting cash: | ||||||||||
| Adjustment for unrealized foreign exchange (gain) |
|
(51 |
) |
|
(134 |
) |
||||
| Amortization of intangible assets |
|
179 |
|
|
289 |
|
||||
| Depreciation of property and equipment |
|
64 |
|
|
64 |
|
||||
| Depreciation of right of use asset |
|
12 |
|
|
12 |
|
||||
| Interest on long-term debt and other financing costs |
|
846 |
|
|
647 |
|
||||
| Change in fair value of derivative financial instruments |
|
(163 |
) |
|
132 |
|
||||
| Share based compensation |
|
45 |
|
|
80 |
|
||||
| Impairment on intangible asset |
|
– |
|
|
2,471 |
|
||||
| Net changes in non-cash working capital items related to operating activities: | ||||||||||
| Trade and other receivables |
|
(9 |
) |
|
40 |
|
||||
| Contract asset |
|
70 |
|
|
(694 |
) |
||||
| Inventory |
|
(98 |
) |
|
229 |
|
||||
| Prepaids and other assets |
|
(976 |
) |
|
(67 |
) |
||||
| Accounts payable and accrued liabilities |
|
153 |
|
|
(436 |
) |
||||
| Net cash used in operating activities |
|
(4,591 |
) |
|
(1,798 |
) |
||||
| Financing activities | ||||||||||
| Interest and financing fees paid |
|
(458 |
) |
|
(336 |
) |
||||
| Proceeds from issuance of common shares, net of financing costs |
|
17,799 |
|
|
3,346 |
|
||||
| Financing costs from debt conversion |
|
(94 |
) |
|
– |
|
||||
| Payment of long-term debt |
|
(250 |
) |
|
– |
|
||||
| Principal elements of lease payments |
|
(24 |
) |
|
(20 |
) |
||||
| Net cash from financing activities |
|
16,973 |
|
|
2,990 |
|
||||
| Investing activities | ||||||||||
| Acquisition of property and equipment, net of deposits |
|
– |
|
|
(4 |
) |
||||
| Acquisition of product rights |
|
– |
|
|
(100 |
) |
||||
| Net cash used in investing activities |
|
– |
|
|
(104 |
) |
||||
| Net increase in cash for the period |
|
12,382 |
|
|
1,088 |
|
||||
| Exchange gain on cash |
|
– |
|
|
74 |
|
||||
| Cash, beginning of period |
|
5,860 |
|
|
3,829 |
|
||||
| Cash, end of period |
$ |
18,242 |
|
$ |
4,991 |
|
||||
Contacts
Robert Motz
Chief Financial Officer
Acerus Pharmaceuticals Corporation
[email protected]
(905) 817-8288
