TORONTO–(BUSINESS WIRE)–Acerus Pharmaceuticals Corporation (“Acerus” or the “Company”) (TSX: ASP) today reported its financial results for the three and twelve-month period ended December 31, 2019. Unless otherwise noted, all amounts are in US dollars and are prepared in accordance with International Financial Reporting Standards (“IFRS”).
2019 Highlights
- Amended and restated (“A&R”) partnership agreement with Aytu Bioscience (“Aytu”) becomes fully functional which should allow for accelerated growth of NATESTO® in the United States
- Multiple scientific publications and congress presentations highlighting the unique clinical profile of NATESTO®
- Avanafil New Drug Submission filed with Health Canada
- Multiple financing transactions in 2019 and 2020 raising over $30 million to fund future growth
“While 2019 was a challenging year for Acerus, we are now better positioned to capitalize on the great opportunities that lie ahead of us”, said Ed Gudaitis, President and Chief Executive Officer of Acerus. “In 2019, we had to address two significant manufacturing-related issues. First, we had to address a shortage of Estrace® due to issues with our UK contract manufacturer. At the same time, we had to deal with a voluntary recall of several batches of Natesto® in Canada and South Korea. Despite these setbacks, we were able to amend and close the revised partnership with Aytu to co-promote NATESTO® in the United States, the largest market opportunity for NATESTO® globally. We also entered 2020 with significant capital on hand that will enable us to execute on our U.S. growth strategy.”
Summary of Results for the Year Ended December 31, 2019 (compared to the Year Ended December 31, 2018 unless otherwise noted)
- Total revenue for the twelve months ended December 31, 2019 and 2018 were $3.8 million and $7.4 million, respectively reflecting the combination of the decline in Estrace® revenue due to previously announced manufacturing issues at our contract manufacturer, the impact of the voluntary recall of Natesto® in Q3 of 2019 and the end of our UrivarxTM distribution agreement in Q2 of 2019.
- Gross margin was $1.6 million compared with a negative gross margin of $2.9 million in 2018. 2018’s negative gross margin reflected the $6.7 million Mattern Pharma AG royalty buyout accrual recorded in the second quarter of 2018.
- Research and development (“R&D”) expenses were $2.8 million in 2019, an increase of $0.4 million from the $2.4 million in 2018 principally reflecting the increased spend related to the Health Canada New Drug Submission for avanafil and additional clinical trial expenses.
- Selling, general and administrative expenses (“SG&A”) were $12.8 million in 2019, an increase of $1.6 million from the $11.2 million reported in 2018. This increase is principally due to costs associated with standing up our US organization in partnership with Syneos Health of $3.5 million, and a $2.5 million non-cash impairment charge for the carrying value of the Estrace® intangible asset. These increases are offset by a decline in SG&A related to Canadian operations of $0.4 million as management has adjusted headcount and spend to reflect the reduced Canadian business volumes until such time that Natesto® and Estrace® are back in market and avanafil has launched in the Canadian market.
- Earnings before interest, tax, depreciation and amortization (“EBITDA”)1 loss was $12.7 million for the year compared with an EBITDA loss of $15.4 million for the prior year reflecting the adjustments noted above. Adjusted EBITDA1 was a loss of $9.3 million for the twelve-months ended December 31, 2019 compared to loss of $5.2 million in 2018.
- The Company incurred a 2019 net loss of $16.1 million or $(0.06) per share compared to $18.8 million or $(0.08) for the same prior year periods.
Summary of Results for the Three Months Ended December 31, 2019 (compared to the Three Months Ended December 31, 2018 unless otherwise noted)
- Total revenue in the quarter was $0.5 million compared to $2.1 million in the fourth quarter of 2018. This decline is mainly due to a decline in Estrace® sales, the impact of the voluntary Natesto® Canada recall and the termination of the UriVarx® distribution agreement in Q2 2019.
- Gross margin in the fourth quarter of 2019 was $0.2 million or 32% compared to $1.3 million or 61% in the prior year quarter, reflecting product mix and higher fixed costs as a percentage of revenue charged to cost of sales in the fourth quarter of 2019.
- Research and development (“R&D”) expense declined slightly by $0.1 million to $0.5 million for the current quarter from $0.6 million in the prior year period.
- Selling, general and administrative expenses (“SG&A”) decreased by $1.9 million to $3.1 million from $5.0 million in the prior year period. This decrease in SG&A is principally due to (i) a non-cash impairment charge of $2.6 million on the value of the Estrace® intangible asset in the fourth quarter of 2018. This charge reflects management’s estimate of the impact of the potential shortage of Estrace® on the carrying value of the underlying asset (see additional discussion below), and (ii) lower Canadian based SG&A of $0.5 million in the fourth quarter of 2019 reflecting headcount and cost reductions to reflect reduced business volumes in Canada, offset by (ii) increased costs of $1.6 million to stand up the US organization in anticipation of the full rollout of the Aytu A&R agreement in 2020.
- EBITDA1 was a loss of $3.1 million compared to a loss of $4.4 million for the prior year quarter. Adjusted EBITDA1, was a loss of $3.3 million for the quarter compared to a loss of $1.3 million for the prior year period.
- The Company incurred a net loss of $3.9 million or $(0.01) per share for the quarter compared to a loss of $5.1 million or $(0.02) per share for the fourth quarter of 2018.
Strengthening the Balance Sheet
Cash as of December 31, 2019 was $5.9 million compared with $4.1 million on September 30, 2019, reflecting the net increase in cash from an increase of $6.5 million to the subordinated debt facility with First Generation Capital Inc. (“First Generation”). First Generation is the Company’s largest shareholder and, until February 21, 2020 was also a lender to the Company, and an entity owned and controlled by Mr. Ian Ihnatowycz, Chairman of the board of directors (the “Board”) of the Company. On February 12, 2020, the Company announced that it had entered into agreements with First Generation and SWK Funding LLC, the Company’s senior lender for the following transactions:
- a private placement to First Generation of 449,148,891 common shares of the Company (the “Common Shares”) at an offering price of C$0.053269 per Common Share, being a 25% discount to the five day volume weighted average price of the Common Shares on the Toronto Stock Exchange as at January 31, 2020, for aggregate gross proceeds to the Company of US$18 million (the “Private Placement”);
- the conversion of the Company’s outstanding US$11.5 million (plus accrued interest of US$526,021) 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 (the “First Generation Loan”) into approximately 300,081,885 Common Shares at a conversion price of C$0.053269 per Common Share (the “Debt Conversion”); and
- an amendment to the SWK Facility (the “SWK Amendment”) which would, among other things, (i) set the minimum threshold for consolidated unencumbered liquid assets required to be maintained by the Company at US$1,500,000, (ii) reset the revenue and EBITDA covenants to better reflect the nature of the Company’s business as it exists today compared to the time the SWK Facility was entered into, (iii) delay the date on which the Company must begin repaying principal from Q1-2021 to Q2-2021; (iv) require pre-payment of US$750,000 of principal in three instalments during 2020 and a commensurate reduction in the amount used to calculate exits fees; and (v) provide flexibility to the Company to dispose of non-core assets and retain some of the proceeds of such dispositions for working capital.
This transaction closed on February 21, 2020. Please refer to our press releases of February 12 and 21, 2020 for further detail on these transactions.
Natesto® Canada and South Korea Update
In 2019, the Company had announced that it had voluntarily recalled several commercial lots of NATESTO® from the Canadian and South Korean markets. Acerus had identified four commercial lots of NATESTO® released in these markets that were found to be non-conforming during long-term stability studies, even though such lots were fully in-specification at the time of release. On November 1, 2019, Health Canada advised the Company that the corrective actions required to improve stability required a Supplemental New Drug Submission (“SNDS”) which had the impact of delaying re-introduction of NATESTO® to these markets until as late as Q1 of 2021. Management’s estimate of this timeline has not changed and the Company is working with its suppliers and with Health Canada to have an expeditious review process.
Estrace® Update
In January of 2019, the Company announced that it had reported an anticipated shortage of certain dosages of Estrace® on the Drug Shortages Canada website in relation to supply issues arising from the Company’s contract manufacturer.
Since that time the Company has entered into an agreement with another contract manufacturer to transfer production of Estrace® and we are anticipating the resumption of Estrace® production in the first half of 2020.
Avanafil Health Canada Approval Status
On June 27, 2019, the Company announced that Health Canada has completed the initial screening process for the previously announced New Drug Submission (“NDS”) for avanafil and the dossier was now in active review by Health Canada. Acerus expects that Health Canada will complete their review and potentially issue a Notice of Compliance for avanafil some time in Q2 2020.
Avanafil, a treatment for erectile dysfunction, is a new, second generation PDE5 inhibitor, which has increased receptor specificity for fast onset of action and lower off-target side effects.
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, charges related to product recall 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 December 31, |
For the year ended December 31, |
|||||||
|
2019 |
2018 |
2019 |
2018 |
||||||
| Net (loss) |
$ (3,883) |
$ (5,051) |
$ (16,129) |
$ (18,786) |
|||||
| Adjustments: | |||||||||
| Income tax |
– |
27 |
– |
29 |
|||||
| Amortization of intangible assets |
176 |
394 |
818 |
1,694 |
|||||
| Depreciation of property and equipment |
63 |
47 |
254 |
240 |
|||||
| Depreciation of right of use asset |
12 |
– |
47 |
– |
|||||
| Interest on long-term debt and other financing costs |
664 |
497 |
2,532 |
1,773 |
|||||
| Interest income |
(11) |
– |
(17) |
(12) |
|||||
| Change in fair value of derivative |
(97) |
(292) |
(161) |
(380) |
|||||
| EBITDA |
$ (3,076) |
$ (4,378) |
$ (12,656) |
$ (15,442) |
|||||
| Licensing and other revenue |
(193) |
(184) |
(193) |
(334) |
|||||
| Royalty expense/Buyout |
– |
– |
– |
6,680 |
|||||
| Share based compensation |
13 |
112 |
176 |
449 |
|||||
| Foreign exchange loss/(gain) |
(167) |
676 |
(261) |
1,029 |
|||||
| Gain on extinguishment of payables |
– |
(195) |
– |
(195) |
|||||
| Charges related to product recall |
77 |
– |
1,053 |
– |
|||||
| Impairment loss on intangible asset |
– |
2,641 |
2,536 |
2,641 |
|||||
| Adjusted EBITDA |
$ (3,346) |
$ (1,328) |
$ (9,345) |
$ (5,172) |
|||||
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 ability of Acerus to obtain regulatory approval for StendraTM, LidbreeTM and ElegantTM, to continue to successfully commercialize Natesto® (particularly in the United States)and Estrace®, and to be successful in its early stage R&D initiatives (including its cannabinoid initiative), and could differ materially from what is currently expected as set out above. For more exhaustive information on these risks and uncertainties you should refer to our annual information form (“AIF”) 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.
Contacts
Robert Motz
Chief Financial Officer
Acerus Pharmaceuticals Corporation
rmotz@aceruspharma.com
(905) 817-8288