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Acerus Reports Fiscal 2020 Second Quarter Financial Results

08/11/2020

Moving Forward During Pandemic; Setting Stage for Growth in 2020 and Beyond

TORONTO--(BUSINESS WIRE)-- Acerus Pharmaceuticals Corporation (“Acerus” or the “Company”) (TSX:ASP; OTCQB:ASPCF) today reported its financial results for the three and six-month period ended June 30, 2020. Unless otherwise noted, all amounts are in US dollars and are prepared in accordance with International Financial Reporting Standards (“IFRS”).

Second Quarter Highlights

  • The Company announced the launch of a US specialty sales organization, including an initial staff of 22, targeting urologists and endocrinologists
  • Acerus also resumed production of NATESTO® to support key markets during the quarter
  • NATESTO® significantly improved patient access – including being added as a preferred brand by Express Scripts, Inc.
  • The results of the spermatogenesis clinical study on NATESTO® were published in the Journal of Urology
  • The Company announced the appointment of Chris Sorli, MD, PhD, FACE, as Acerus’ Chief Medical Officer

“In the midst of a global pandemic, I’m pleased to announce that Acerus is moving forward on a number of fronts to strengthen the Company’s growth profile and overall operating outlook,” said Ed Gudaitis, President and Chief Executive Officer. “Having launched our specialty sales organization in the US and ramped up production of NATESTO®, we believe we are well positioned to penetrate our target markets, introduce physicians and customers to the unique benefits of our products, and respond to anticipated demand.

“During the course of the first half of 2020, we – along with Syneos Health, OEP, and Aytu BioScience – made careful plans to bring our product to market and launch a team to ensure its success. I’m very pleased that this coordinated approach has already led to success in increasing our presence around the globe – with more to come later this year. Given our other initiatives to improve patient access and insurance coverage, along with a heightened awareness in journals and studies across North America, I believe the future looks bright for Acerus. I want to thank our staff for their continued passion and hard work, our partners for their confidence in our products, and our investors for their patience and support as we turn Acerus into the growth organization we always knew it would be.”

Summary of Results for the Three Months Ended June 30, 2020 compared to the Three Months Ended June 30, 2019, unless otherwise noted

The Company reported revenue of $0.2 million for the second quarter of 2020 compared with $1.3 million in the prior-year period. This decline was primarily due to the lack of revenue in the Canadian and South Korean markets related to the ongoing voluntary product recall (see below commentary) combined with conservation measures for ESTRACE®. In addition, the second quarter of 2019 was the last quarter to include revenue related to Urivarx™, after which the Company and manufacturer mutually agreed to terminate the distribution and license agreement for this product in the Canadian market.

Gross loss was $0.05 million in the second quarter of 2020 versus $0.08 million in 2019; however, the 2019 second quarter included a $0.8 million charge related to the NATESTO® voluntary product recall. The negative gross margin in the current period reflects the impact of fixed, non-cash costs of $0.2 million related to the amortization of intangible assets and depreciation of property and equipment.

Second quarter research and development ("R&D") expenses were $0.4 million in 2020 versus $0.6 million in the prior-year period; the decline was due primarily to a reduction in salaried expense of $0.2 million. In addition, several NATESTO® related R&D projects for the American and European markets were delayed due to the impact of COVID-19. The Company expects R&D expense to return to historic levels in future quarters.

Selling, general and administrative expense (“SG&A”) increased by $2.4 million, to $4.6 million, in the second quarter of 2020 compared to the same period in 2019. Total selling expenses increased by $2.8 million over the prior-year period. The increase was due to expenses incurred developing and launching the NATESTO® sales and marketing organization in the United States. However, overall headcount expense was $0.6 million in 2020 versus $1.1 million in 2019, with the decline reflecting a combination of headcount reductions and the benefit of COVID-19 employment support incentives provided by the Canadian government.

Second quarter earnings before interest, tax, depreciation and amortization (“EBITDA”)1 was a loss of $5.0 million compared to a loss of $2.6 million in the second quarter of 2019. Adjusted EBITDA1 was a loss of $4.7 million for the current year second quarter compared to a loss of $1.8 million in the prior-year period.

The Company incurred a net loss of $5.6 million, or $(0.01) per share, for the quarter compared to a loss of $3.2million, or $(0.01) per share, in the second quarter of 2019.

Cash as of June 30, 2020 was $12.0 million compared with $5.9 million on December 31, 2019, reflecting the proceeds of an $18 million private placement completed on February 21, 2020, offset by cash used in operations (principally to implement the US sales and distribution organization).

COMPANY UPDATES AND OUTLOOK

NATESTO®

The Company continues to execute on its strategy of focusing on the US market. Acerus, in combination with its US contract commercial provider Syneos Health Inc. (“Syneos”), is working remotely to build out its US commercial staff (marketing, sales and national accounts) and medical relationships (i.e., medical science liaisons). On July 20, 2020 the Company announced the deployment of a specialty sales team in the US market; the 22-person sales force will target high-prescribing (decile 6-10) medical practitioners who currently treat men with hypogonadism. Acerus, in partnership with Syneos, has equipped its US team with a suite of digital technologies that will allow reps to conduct virtual meetings and customer engagements, given varying state rules regarding COVID-19 restrictions.

On July 1, 2020, the company announced a significant improvement in commercial insurance coverage for NATESTO® in the United States. Express Scripts Inc. (ESI), a leading national Pharmacy Benefits Manager (PBM), added NATESTO® to its Preferred Drug List as a Preferred Brand. NATESTO® is one of only two branded (non-generic) testosterone therapies included on the ESI Preferred Drug List. ESI serves more than 3,000 clients – covering 70 million lives – including approximately 9 million managed by Cigna HealthCare. In addition, NATESTO® has also been added in an advantageous position to the formularies of two other regional PBMs effective July 1, 2020. These two PBMs cover more than 5 million commercial lives combined.

On July 28, 2020, the Company announced that manufacturing of NATESTO® was underway, with shipments initially destined to the US and to support a new product launch in Taiwan by Acerus partner EU HWA PTE LTD, a subsidiary of Orient EuroPharma (“OEP”).

Based on current manufacturing schedules, the Company currently expects to return NATESTO® to the Canadian and South Korean markets prior to the end of 2020. In addition, the Company is working with OEP to expand NATESTO® to other markets in their licensed territories including Hong Kong, the Philippines, Singapore, Malaysia and Vietnam.

ESTRACE®

The Company continues to work with a new contract manufacturer to return ESTRACE® to the Canadian market, with the expectation that all doses (0.5mg, 1.0mg and 2.0mg) will be ready for distribution by the end of fiscal 2020.

On June 18, 2020, the Company announced that it was commencing litigation against its former contract manufacturer, Recipharm Limited (“Recipharm”). The Company alleges that the suspension of Recipharm’s manufacturing license in August 2018, in violation of its contractual obligations to Acerus, led to a shortage of ESTRACE® in Canada. In 2018, ESTRACE® generated revenue of $4.2 million. However, due to the shortage, ESTRACE® revenue – and Acerus’ market share – have both declined substantially. Consequently, Acerus has sued Recipharm for, among other things, its loss of profits and market share caused by the aforementioned contractual violations.

Recipharm’s statement of defense is due to be filed in late August.

avanafil

On April 20, 2020, the Company announced that it had received a Notice of Deficiency (“NOD”) from Health Canada related to its avanafil New Drug Submission (“NDS”). Health Canada has requested the provision of additional quality information related to the avanafil drug substance in alignment with International Council for Harmonization (ICH) technical guidance adopted by Health Canada. Until this information is provided to Health Canada, the avanafil review process has been halted. Acerus had 90 calendar days to respond fully to the NOD, but the date has been extended to October 13, 2020. If Acerus is successful in providing the required information, the NDS review process will restart and may take up to 360 days to complete.

The Company has been working closely with Metuchen Pharmaceuticals LLC, the licensor of the product, to assess the pathway required to address the deficiency noted by Health Canada.

In addition, on July 7, 2020, VIVUS, Inc. (“VIVUS”), the licensor of avanfil to Metuchen, announced that it has completed the solicitation of an in-court prepackaged plan of reorganization, under which IEH Biopharma LLC (“IEH”) will take 100% ownership of VIVUS ahead of its July 7, 2020 chapter 11 filing. Acerus has been in communication with Metuchen and received assurances that the chapter 11 filing will not impact the supply chain for avanafil or the chain of intellectual property licensed to Acerus.

Conference Call

Shareholders are reminded that the conference call to discuss the Company’s results for the three- and six-month period ending June 30, 2020 will be held on today, August 11, 2020 at 10:00 a.m. Eastern Time. To access the call live, please dial 416-406-0743 or 1-800-898-3989 and use access code 1116365#. 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, August 18, 2020 by dialing 905-694-9451 or 1-800-408-3053, using access code: 6487168#.

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 the 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 the impact of charges related to a product recall. 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 June 30,

 

For the six months ended June 30,

2020

2019

 

2020

2019

Net (loss)

$

(5,610

)

$

(3,203

)

$

(10,273

)

$

(7,634

)

Adjustments:
Amortization of intangible assets

 

179

 

 

176

 

 

358

 

 

465

 

Depreciation of property and equipment

 

64

 

 

63

 

 

128

 

 

127

 

Depreciation of right of use asset

 

12

 

 

11

 

 

24

 

 

23

 

Interest on long-term debt and other financing costs

 

382

 

 

519

 

 

1,228

 

 

1,166

 

Interest income

 

(32

)

 

-

 

 

(63

)

 

(1

)

Change in fair value of derivative

 

59

 

 

(171

)

 

(104

)

 

(39

)

EBITDA

$

(4,946

)

$

(2,605

)

$

(8,702

)

$

(5,893

)

 
Share based compensation

 

203

 

 

26

 

 

248

 

 

106

 

Foreign exchange (gain)

 

151

 

 

(95

)

 

(93

)

 

(185

)

Charges related to product recall

 

(71

)

 

792

 

 

(71

)

 

792

 

Impairment loss on intangible asset

 

-

 

 

65

 

 

-

 

 

2,536

 

Adjusted EBITDA

$

(4,663

)

$

(1,817

)

$

(8,618

)

$

(2,644

)

 

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 June 30, 2020 and December 31, 2019
Unaudited
(expressed in thousands of U.S. dollars)
 

June 30,

2020

December 31,

2019

 
ASSETS
 
Current assets
Cash

$

12,029

 

$

5,860

 

Trade and other receivables

 

157

 

 

171

 

Contract asset

 

230

 

 

473

 

Inventory

 

3,081

 

 

1,494

 

Prepaid and other assets

 

554

 

 

1,237

 

Total current assets

 

16,051

 

 

9,235

 

 
Property and equipment, net

 

923

 

 

1,051

 

Right of use asset

 

239

 

 

263

 

Intangible assets, net

 

4,533

 

 

4,891

 

Total assets

$

21,746

 

$

15,440

 

 
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
 
Current liabilities
Accounts payable and accrued liabilities

$

5,818

 

$

7,408

 

Current portion of long-term debt

 

701

 

 

-

 

Current portion of lease liability

 

100

 

 

101

 

Total current liabilities

 

6,619

 

 

7,509

 

 
Lease liability

 

435

 

 

510

 

Long-term debt

 

7,610

 

 

19,990

 

Derivative financial instruments

 

207

 

 

262

 

Total liabilities

 

14,871

 

 

28,271

 

 
Shareholders' equity (deficiency)
Share capital

$

188,133

 

$

158,402

 

Warrants

 

-

 

 

1,420

 

Contributed surplus

 

13,029

 

 

11,361

 

Accumulated other comprehensive loss

 

(13,949

)

 

(13,949

)

Deficit

 

(180,338

)

 

(170,065

)

Total shareholders' equity (deficiency)

 

6,875

 

 

(12,831

)

Total liabilities & shareholders' equity (deficiency)

$

21,746

 

$

15,440

 

 
Acerus Pharmaceuticals Corporation
Condensed Interim Consolidated Statements of Loss and Comprehensive Loss
For the three and six months ended June 30, 2020 and 2019
Unaudited
(expressed in thousands of U.S. dollars, except per share and share data)
For the three months ended
June 30,
For the six months ended
June 30,

2020

2019

2020

2019

 
 
Product revenue

$

176

 

$

1,256

 

$

321

 

$

3,421

 

Cost of goods sold

 

224

 

 

1,339

 

 

425

 

 

1,971

 

Gross margin (loss)

 

(48

)

 

(83

)

 

(104

)

 

1,450

 

 
Expenses
Research and development

 

400

 

 

647

 

 

1,022

 

 

1,685

 

Selling, general and administrative

 

4,602

 

 

2,220

 

 

8,179

 

 

6,458

 

Total operating expenses

 

5,002

 

 

2,867

 

 

9,201

 

 

8,143

 

Operating loss

 

(5,050

)

 

(2,950

)

 

(9,305

)

 

(6,693

)

 
Other expenses/(income)
Interest on long-term debt and other financing costs

 

382

 

 

519

 

 

1,228

 

 

1,166

 

Interest income

 

(32

)

 

-

 

 

(63

)

 

(1

)

Foreign exchange (gain)/loss

 

151

 

 

(95

)

 

(93

)

 

(185

)

Change in fair value of derivative financial instruments

 

59

 

 

(171

)

 

(104

)

 

(39

)

Total other expenses

 

560

 

 

253

 

 

968

 

 

941

 

Net loss for the period

 

(5,610

)

 

(3,203

)

$

(10,273

)

$

(7,634

)

 
Other comprehensive income, net of income tax
Foreign currency translation adjustment

 

-

 

 

(12

)

 

-

 

 

44

 

Total comprehensive loss for the period

 

(5,610

)

 

(3,215

)

$

(10,273

)

$

(7,590

)

 
Loss per common share
Basic and diluted net loss per common share

$

(0.01

)

$

(0.01

)

$

(0.01

)

$

(0.03

)

 
Weighted average common shares outstanding
Basic and diluted

 

1,010,456,066

 

 

260,881,081

 

 

833,440,004

 

 

248,459,798

 

Diluted

 

1,010,456,066

 

 

260,881,081

 

 

833,440,004

 

 

248,459,798

 

 
Acerus Pharmaceuticals Corporation
Condensed Interim Consolidated Statements of Cash Flows
For the six months ended June 30, 2020 and 2019
Unaudited
(expressed in thousands of U.S. dollars)
 

June 30,

2020

June 30,

2019

 
Operating activities:
Net loss for the period

$

(10,273

)

$

(7,634

)

Items not affecting cash:
Adjustment for unrealized foreign exchange (gain)

 

(23

)

 

(211

)

Amortization of intangible assets

 

358

 

 

465

 

Depreciation of property and equipment

 

128

 

 

127

 

Depreciation of right of use asset

 

24

 

 

23

 

Interest on long-term debt and other financing costs

 

1,228

 

 

1,166

 

Change in fair value of derivative financial instruments

 

(104

)

 

(39

)

Share based compensation

 

248

 

 

106

 

Gain on disposal of property and equipment

 

-

 

 

(5

)

Impairment on intangible asset

 

-

 

 

2,536

 

Inventory impairment

 

-

 

 

339

 

Net changes in non-cash working capital items related to operating activities:
Trade and other receivables

 

14

 

 

395

 

Contract asset

 

243

 

 

(694

)

Inventory

 

(1,587

)

 

593

 

Prepaids and other assets

 

683

 

 

(543

)

Accounts payable and accrued liabilities

 

(1,294

)

 

(1,764

)

Net cash used in operating activities

 

(10,355

)

 

(5,140

)

 
Financing activities
Interest and financing fees paid

 

(883

)

 

(774

)

Proceeds from issuance of common shares, net of financing costs

 

17,799

 

 

3,350

 

Financing costs from debt conversion

 

(94

)

 

-

 

Payment of long-term debt

 

(250

)

 

-

 

Principal elements of lease payments

 

(48

)

 

(39

)

Net cash from financing activities

 

16,524

 

 

2,537

 

 
Investing activities
Proceeds from disposition of property and equipment

 

-

 

 

5

 

Acquisition of property and equipment, net of deposits

 

-

 

 

(4

)

Acquisition of product rights

 

-

 

 

(100

)

Net cash used in investing activities

 

-

 

 

(99

)

 
Net increase in cash for the period

 

6,169

 

 

(2,702

)

Exchange gain on cash

 

-

 

 

104

 

Cash, beginning of period

 

5,860

 

 

3,829

 

Cash, end of period

$

12,029

 

$

1,231

 

 

Robert Motz, Chief Financial Officer
Acerus Pharmaceuticals Corporation
ir@aceruspharma.com
(416) 679-0771

Chris Witty
Acerus Investor Relations
(646) 438-9385
cwitty@darrowir.com

Source: Acerus Pharmaceuticals Corporation