Acerus Reports Third Quarter and Year-to-Date Fiscal 2019 Financial Results – Business Wire

TORONTO--(BUSINESS WIRE)--Acerus Pharmaceuticals Corporation (Acerus or the Company) (TSX:ASP; OTCQB:ASPCF) today reported its financial results for the three- and nine-month period ended September 30, 2019. Unless otherwise noted, all amounts are in US dollars and are prepared in accordance with International Financial Reporting Standards (IFRS).

Third Quarter Highlights

In anticipation of the closing of the A&R Agreement, we have begun the process of standing-up both a US market access team and specialty sales organization to co-promote NATESTO to the United States market. This expansion of our footprint to enter the United States market confirms our mens health strategy and truly establishes Acerus as a globally focused company headquartered in Canada, not just a company servicing the Canadian marketplace, said Ed Gudaitis, President and Chief Executive Officer of Acerus. We are also excited about the results of a clinical study showing that NATESTO increases serum testosterone and improves symptoms while maintaining normal semen parameters in men with low testosterone. This positive study, presented initially by Dr. Ranjith Ramasamy, MD, Associate Professor and Director of Reproductive Urology at the University of Miami School of Medicine, at the American Society for Reproductive Medicine Conference on October 17, 2019, and subsequently at an Acerus Key Opinion Leader presentation in New York City on October 30, 2019, clearly differentiates NATESTO from other approved testosterone therapies. We are very excited by the outcomes of this study and will look to further develop the growing evidence-base supporting NATESTO.

Summary of Results for the Three Months Ended September 30, 2019 (compared to the Three Months Ended September 30, 2018 unless otherwise noted)

Total revenue in the quarter was negative $0.2 million compared to $1.6 million in the third quarter of 2018. This decline is due to a $0.8 million drop in Estrace and UrivarxTM product revenues and the net impact of $0.6 million in Q3-2019 for returns associated with the delay in returning NATESTO to the Canadian and South Korean markets (previously it was assumed that the product would be replaced rather than returned) and reversing the Q2-2019 $0.1 million charge to revenue discounts for incentives to customers to accept replacement product.

On August 2, 2019, we announced that we would voluntarily replace certain NATESTO lots released in the Canadian and South Korean markets, which was expected to cause temporary shortages in those markets. We have identified four commercial lots of NATESTO released in the Canadian and South Korean 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. This post-release non-conformity is not harmful to the patient, but may result in difficulties in dispensing. Acerus made minor modifications to the manufacturing process that appear to have resolved the previously identified issues and has produced a new commercial batch of Natesto. On November 1, 2019, we announced that Health Canada classified the changes as level I, requiring the submission of a SNDS. Should Health Canada utilize the full regulatory allotted time for reviewing a SNDS, Acerus would expect the Revised Batch to be released in the Canadian Market in Q1-2021. In Q2-2019, we had previously impaired inventory by $0.3 million and accrued $0.5 million related to replacing products, discounts and potential returns due to the issue described above. However, due to the additional delays, the Company reversed the previous accruals related to discounts and replacement of product and has accrued $0.7 million for returns in the current quarter.

The following table indicates the revenue by product for the quarter (in US$000s):

Difference

$

$ 80

$ 172

$ (92)

(159)

364

(523)

(296)

-

(296)

(375)

536

(911)

203

883

(680)

5

164

(159)

$ (167)

$ 1,583

$ (1,750)

Gross margin declined by $0.8 million to negative $0.04 million compared to the prior year quarter. The current figure reflects the accrual for product returns described above and the reversal of the $0.4 million charge to cost of goods made in Q2-2019 when it was expected that the Company would replace the recalled NATESTO product.

Selling, general and administrative expenses (SG&A) increased to $3.2 million from $2.2 million in the prior year period. The current quarter reflects costs of $2.1 million in anticipation of the NATESTO United States A&R Agreement closing and subsequent launch. Absent this charge, SG&A expenses were $1.1 million or 50% lower than the comparable prior year period, reflecting decreased marketing and selling expenses related to NATESTO Canada and UriVarxTM and decreased salaries and benefits costs due to reductions in commercial headcount and reductions in bonus accrual. The Company will continue to review expenses and make adjustments where necessary in light of the recent recall and SNDS requirement. In particular, Acerus will be streamlining its future operating expenses to focus on the following key priorities: 1) the standing up of the US organization in anticipation of the go-live of the A&R Agreement, 2) the approval by Health Canada and launch of avanafil in the Canadian market, 3) supporting our global partners who are launching NATESTO in their respective markets and 4) strengthening the management of our third-party manufacturing network.

Research and development ("R&D") expense was $0.6 million for the current quarter, a slight decline from the $0.8 million for the prior year period.

Earnings before interest, tax, depreciation and amortization (EBITDA)1 was a loss of $3.7 million compared to an EBITDA loss of $1.6 million for the prior year quarter. Adjusted EBITDA1, was a loss of $3.4 million for the quarter compared to a loss of $1.5 million for the prior year period.

The Company incurred a net loss of $4.6 million or $(0.02) per share for the quarter compared to a loss of $2.9 million or $(0.01) per share for the third quarter of 2018.

Cash as of September 30, 2019 was $4.1 million compared with $3.8 million on December 31, 2018, reflecting the proceeds of a CDN$4.5 million private placement in Q1-2019, and a US$5.0 million subordinated debt facility entered into in Q3-2019 between the Company and First Generation Capital Inc., a company affiliated with the Chairman of the Board of Directors of the Company, offset by cash used in operations.

Summary of Results for the Nine Months Ended September 30, 2019 (compared to the Nine Months Ended September 30, 2018 unless otherwise noted)

NATESTO USA UPDATE

As indicated above, the Company and Aytu Bioscience jointly announced on July 30, 2019, that they had signed an amended and restated license agreement to allow Acerus to enter the US market directly and co-promote NATESTO to the specialist (urology and endocrinology) market. Under the terms of the new agreement, Aytu returns the NDA for NATESTO in the US back to Acerus. Going forward, Acerus will assume all regulatory and clinical responsibilities and costs for the product in the US Acerus will take on a more expansive role in matters such as US marketing, reimbursement and medical strategy as part of the companies joint commercialization committee. Aytu will retain its primary care sales force and will continue to book all product net revenue while serving as the exclusive US supplier of NATESTO to wholesalers, pharmacies and other customers that receive a direct shipment. Financial payments will be based upon a tiered level of net revenue, post cost of goods sold (COGS), based on annual sales performance in the respective Acerus and Aytu Sales Channels. This transaction is conditional on Acerus raising at least US$10 million in any combination of debt or equity by no later than January 29, 2020. In anticipation of the condition being satisfied, the Company has begun working with its partner, Syneos Health, to facilitate a launch by Acerus in early 2020.

Conference Call

Shareholders are reminded that the conference call to discuss the Companys results for the three- and nine-month period ending September 30, 2019 will be held on Thursday, November 14, 2019 at 8:30 a.m. Eastern Time. To access the call live, please dial 416-340-2219 or 1-800-478-9326. 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 Thursday, November 21, 2019 by dialing 905-694-9451 or 1-800-408-3053, using access code: 2401991#.

About AcerusAcerus Pharmaceuticals Corporation is a Canadian-based specialty pharmaceutical company focused on the development, manufacture, marketing and distribution of innovative, branded products that improve patient experience, with a primary focus in the field of mens health. The Company commercializes its products via its own salesforce in Canada, and through a global network of licensed distributors in the US and other territories.

Acerus shares trade on TSX under the symbol ASP and on the OTCQB under the symbol ASPCF. For more information, visit http://www.aceruspharma.com and follow us on Twitter and LinkedIn.

1 Non-IFRS Financial Measures - EBITDA and Adjusted EBITDAThe 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 Companys 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.

2019

2018

2019

2018

$

(4,612

)

$

(2,871

)

$

(12,246

)

$

(13,735

)

-

2

-

2

177

447

642

1,300

64

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Acerus Reports Third Quarter and Year-to-Date Fiscal 2019 Financial Results - Business Wire