Good day, ladies and gentlemen, and welcome to the Recro Third Quarter 2021 Financial Results Conference Call. As a reminder, this conference call may be recorded. I would now like to hand the conference over to Stephanie Diaz of Recro’s Investor Relations Group. Please go ahead.

Thank you. Hello and thank you for joining us. On today’s call, we have David Enloe, President and CEO and Ryan Lake, Chief Financial Officer. Today, we will be providing an overview of Recro’s contract development and manufacturing business, including updates on corporate activities and financial results for the quarter ended September 30, 2021. After our prepared remarks, we will welcome your questions. Before we begin, I’d like to caution that comments made during this conference call today, November 9, 2021, will contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, concerning the current beliefs of the company, which involve a number of assumptions, risks and uncertainties. Actual results could differ from these statements and the company undertakes no obligation to revise or update any statement made today. I encourage you to review all of the company’s filings with the Securities and Exchange Commission concerning these and other matters. Our earnings press release and this call will include discussion of certain non-GAAP information. You can find our earnings press release, including relevant non-GAAP reconciliations, on our corporate website at recrocdmo.com. With that, I will turn the call over to David Enloe, Recro’s President and CEO.

Thank you, Stephanie, and thank you to everyone who has dialed in and to those who are participating today via webcast. During the third quarter, Recro significantly increased and accelerated its growth trajectory through the acquisition of IriSys, a CDMO with capabilities that greatly complement our own. We believe that through the joining of these two companies, we have created an organization best positioned to achieve sustainable growth and profitability. The impact of the company’s broadened geographic footprint and expanded service offerings facilitated a number of new business wins during the period spanning the full range of Recro’s capabilities at both locations, including new client contracts for oral solid dose projects to be carried out in Georgia, new client contracts for advanced dosage formats to be performed in San Diego, expanded contracts with existing clients in both Georgia and San Diego, contracts for commercial production as well as contracts for clinical trial materials. A contract that will utilize the high potency suite recently put into operation in Georgia and contracts for clinical trial services such as packaging and labeling. I will provide details on each of these achievements following an overview of our Q3 and 9-month financial results. For that, I will turn the call over to Ryan.

Thank you, David. Good afternoon, everyone. Before I begin, in addition to the brief financial overview, I’ll provide on the call today, additional details on our financial results for the third quarter and 9 months ended September 30, 2021, are included in our press release issued prior to this call and in our Form 10-Q, which was filed today with the SEC. I’ll begin with an overview of our financial results for the third quarter. Revenues for the quarter ended September 30, 2021, were $18.2 million. This represents a 6% decrease compared to revenues of $19.3 million recorded during the prior year period. The decrease of $1.1 million was primarily the result of decreased product sales due to timing of customer orders. This decrease was partially offset by increases in revenue due to the acquisition of IriSys as well as higher revenues from our clinical trial materials business, including revenue from the Otsuka commercial product tech transfer project. Cost of sales for the quarter ended September 30, 2021, was $13.2 million compared to $11.7 million for the comparable period of 2020. The increase of $1.5 million was primarily due to costs from the San Diego facility due to the acquisition of IriSys and is partially offset by lower costs due to certain employment incentive tax credits in 2021. Selling, general and administrative expenses for the third quarter were $4.6 million compared to $4.4 million recorded in the 2020 period. The increase of $0.2 million was primarily associated with deal and integration costs related to the acquisition of IriSys and business development expenses associated with our San Diego team offset by lower public company costs and stock-based compensation expense. Interest expense was $3.8 million for the 3 months ended September 30, 2021, a decrease compared to $4.6 million for the comparable period of 2020. The decrease of $0.8 million was primarily due to reduced term loan borrowings under the Credit Agreement with Athyrium as well as a decrease in the LIBOR base rate of interest on our term loans under the Credit Agreement. This decrease was partially offset by an increase in interest from the seller’s note, which was a component of the IriSys acquisition purchase price. For the quarter ended September 30, 2021, the company recorded a net loss of $3.5 million or $0.07 per diluted share as compared to a net loss of $2.1 million or $0.09 per diluted share for the comparable period of 2020. EBITDA as adjusted for the period was $5.3 million compared to $6.3 million in the prior year period. I will now provide an overview of our financial results for the 9-month period. Revenues for the 9 months ended September 30, 2021, was $53.1 million compared to $56.6 million for the same period in 2020. The decrease of $3.5 million in revenue was primarily the result of the discontinuation of two commercial product lines by our commercial partners announced in the first quarter of 2020. During the 2021 period, increased product sales from one of our commercial partners increased revenue due to the acquisition of IriSys as well as higher revenues from our clinical trial materials, new business growth activities have partially offset the decrease. Cost of sales for the 9 months ended September 30, 2021, was $39.8 million compared to $41.6 million for the same period in 2020. The cost of sales decrease of $1.8 million was primarily due to lower commercial manufacturing volumes and reflects lower costs due to the prior year reduction in force as well as certain employment incentive tax credits in 2021 offset by costs from the San Diego facility due to the acquisition of IriSys. Selling, general and administrative expenses for the 9 months ended September 30, 2021, were $13.1 million compared to $14.1 million for the same period in 2020. The decrease of $1 million was primarily related to lower public company costs and stock-based compensation expense, offset by expenses related to the acquisition of IriSys and the business development expenses associated with IriSys. Interest expense was $11.7 million and $14.7 million during the 9 months ended September 30, 2021 and 2020, respectively. The decrease of $3 million was primarily due to the successful refinancing and reduced term loan borrowings under the Credit Agreement with Athyrium as well as a decrease in the LIBOR-based rate of interest on our term loans under the Credit Agreement. This decrease was partially offset by an increase in interest from the seller’s note, which was a component of the IriSys acquisition purchase price. For the 9 months ended September 30, 2021, Recro reported a net loss of $9 million or $0.22 per diluted share compared to a net loss of $15.8 million or $0.67 per diluted share for the comparable period in 2020. EBITDA as adjusted for the period was $13.4 million compared to $13.7 million in the prior year period. Our cash and cash equivalents as of September 30, 2021, were $23.5 million compared to $23.8 million as of the end of the prior fiscal year. As a result of Recro’s acquisition of IriSys, the company is increasing its revenue guidance for the full year 2021 to be in a range of $74 million to $76 million with an EBITDA as adjusted target range of $16 million to $18 million and a net loss range of $11.6 million to $13.6 million. This concludes my financial overview, and I’ll now turn the call back over to David for an update on operations and achievements during the period. David?

Thanks, Ryan. The third quarter was a busy and exciting time at Recro, driven primarily by the company’s acquisition of IriSys Inc., a San Diego-based CDMO in August, Recro made substantial progress with each of the company’s strategic goals as outlined earlier in the year. These 4 goals are

expanding and diversifying Recro’s customer base, strengthening our financial position in order to better support both organic and inorganic growth, augmenting our leadership as well as restructuring our operational organization and continuing the upgrade and expansion of our facilities and capabilities to support clinical stage projects while expanding commercial projects and high-value tech transfers and validations. As a reminder, IriSys was previously an independent CDMO with a number of highly attractive features, including over 3 dozen customers, experience producing clinical trial materials for more than 100 companies including about 40 clinical products in 4 commercial or near-commercial products, 2021 estimated revenue of $15.4 million with estimated 2021 EBITDA of $2.8 million, a contracted backlog embedded sales pipeline of $23.4 million, an 85% repeat business rate with its existing customers, customers from 6 different countries, and most importantly, significant capabilities beyond oral solid dose, including sterile and non-sterile injectables, liquid and powder-filled capsules, tablets, oral liquids, liposomes and nano or microparticles, topical formulations and ophthalmic droppers. For these reasons, the acquisition of IriSys presented a unique opportunity for Recro to rapidly and significantly enhance our capabilities, our capacity and our geographical reach. Today, as we are well into the integration of the two entities, it is clear that our operational synergies are even greater than initially expected. In this short amount of time, the expanded organization can now claim an increased pipeline and revenue diversification, significantly expanded capabilities, the ability to leverage a variety of functional capabilities across a wider footprint, synergies within business development, clinical development and commercial scale up, regulatory and quality systems and environmental health and safety systems, a bicoastal presence and increased talent pool and expanded customer base, a strong alignment and contribution to our already strong culture and multiple platforms for future organic growth. The operational impact and opportunities presented by this acquisition are substantial. And since August, our team has been hard at work optimizing our combined business operations. To that end, the company formed an integration team, which is focusing on 15 discrete work streams to ensure all synergies and opportunities for sales and marketing efforts, business systems, quality and regulatory systems, human resources and people engagement practices, environmental, health and safety policies and all other aspects of the company’s operations are being captured and optimized. Concurrent with the company’s efforts to optimize its facilities and work streams, Recro continues to take steps to build sustainability into its operations. In 2019, Recro initiated a number of programs designed to reduce the company’s environmental impact by building efficiencies and the utilization of materials, water and energy consumption while minimizing waste. During the third quarter, the company expanded its sustainability efforts through the signing of a Renewable Energy Agreement with Georgia Power under which the company will purchase 1.2 million energy credits or RECs through Georgia Power’s simple solar program. Recro’s REC’s purchase contributed towards the equivalent reduction of 937,426 tons of carbon dioxide emissions, making a substantial contribution to the company’s sustainability goals. Over the last 2 years, the company has made great progress towards reducing emissions and waste, and we invite you to visit the Sustainability page on our website for an overview of our achievements and goals in this important area. During the third quarter, Recro continued to win new business, expanding our manufacturing pipeline and increasing capacity utilization. Manufacturing agreements signed during the period spanned the company’s broad capabilities and bicoastal facilities. New agreements include work with new customers as well as expanded services with existing customers, such as BioCorRx, for which Recro will perform analytical validation services and GMP manufacturing of its implantable naltrexone pellet. Notably, we also recently announced the execution of a commercial Master Services and Supply Agreement with Otsuka Pharmaceutical Company. We are currently conducting a tech transfer in support of becoming the U.S.-based production site for one of its branded commercial products, having a U.S. presence to produce commercial products, reducing supply chain risk and is a key part of our value to our clients and we are pleased to have been selected by Otsuka for this important work. Both our Gainesville and San Diego facilities will manufacture portions of the new business signed during the quarter, depending on the capabilities required. The company recently has begun a significant tech transfer of a commercial manufacturing program for a currently undisclosed large pharmaceutical company. Importantly, in an effort to best match projects with facilities, this program was transferred from San Diego to Gainesville in order to best align Recro’s capabilities and expertise. We view this transfer as a testament to the exact type of business and operational synergies that were the basis for the IriSys acquisition. Subsequent to quarter end, Recro also announced that it has been awarded a new development and manufacturing contract by the National Center for Advanced Translational Services, NCATS, at the National Institutes of Health or NIH. Under terms of the new contract, the company will support CMC development of NES-100, a microparticle dosage form of leu-enkephalin that is prepared by the encapsulation of leu-enkephalin in a patent-protected molecular envelope technology and delivered via a nasal spray device. This project will utilize and enhance our spray drying capabilities and we believe that it highlights the impressive capabilities and unique expertise possessed by Recro San Diego team and the development and manufacturer of sophisticated therapeutic formulations. Equally important, the company is now positioned to offer a range of new value-added services to our customers, including packaging and distribution in clinical trial services. Not only do we believe that these added services will attract new customers, but we expect that they will open new revenue channels from existing customers, strengthen client relationships and increase the opportunity for future projects. In the short period of time, since the acquisition, the company has held numerous meetings with clients regarding services now offered which those clients could not access prior to the acquisition. We are very pleased with the achievements of our business development team during the quarter. Each piece of new business supports the company’s goals of expanding and diversifying our customer base, strengthening our financial position, improving margins and bringing the company closer to sustained profitability. Another critical component of Recro’s strategic plan calls for the addition and promotion of exceptional leaders throughout the organization. Earlier this year, the company added two members to our Board and significantly expanded our business development team. During and subsequent to the third quarter, the company made multiple other critical operational appointments assigning team leaders from both Recro and IriSys. In recent months, the company has also made key management appointments. As reported last quarter, Recro has appointed Erica Raether as the company’s inaugural Vice President of People, Culture and ESG. This new position is critical given Recro’s commitment to achieving sustainable growth and profitability and doing so with a mindset towards advancing our diversity, equity and inclusion efforts as well as running our operations in a sustainable, responsible manner. Erica has 20 years of human resources experience within the biotech and medical device industries. The company also recently appointed Tim Burke as Vice President and Head of Operations for Recro’s San Diego. Mr. Burke joined Recro from Ajinomoto Bio Pharma Services, where he was most recently Senior Director of Supply Chain and Facilities. In this role, he had leadership responsibility for the company’s U.S. supply chain, warehouse, facilities, packaging and fill-finish visual inspection operations. He also served as the Site Head at one of Aji Bio Pharma’s three San Diego locations. During his career, Mr. Burke has also held key supply chain and logistics positions with leading CDMO and biopharmaceutical companies, including Lonza, Althea, Shire Human Genetic Therapies and Ipsen. In his new role with Recro, he will support the continued successful integration of Recro and IriSys, while also leading the Recro San Diego site. We are very pleased to have both Erica and Tim on board filling two important leadership roles at Recro, and we continue our industry-wide search for additional CDMO expertise and talent. In closing, I’d like to reiterate the significance of the quarter’s activity accomplishments. While Recro achieved a number of key milestones and made great progress during the first half of the year, the acquisition of IriSys has significantly accelerated our path towards growth and sustainable profitability. Through this strategic combination, our organization has significantly expanded and diversified our customer base, enhancing the stability of our revenues and strengthening the company’s financial position. We have substantially expanded our CDMO leadership, experience and talent as well as our geographical reach. And finally, we have significantly expanded and enhanced the organization’s facilities and capabilities, creating a stronger and more versatile CDMO capable of attracting and efficiently servicing a broader range of customers in the U.S. and abroad. We continue to make great progress with the ongoing integration and look forward to updating you all in the coming months. This concludes my prepared remarks for today. We can now open up the call for questions. Operator?

Our first question comes from the line of Matt Hewitt of Craig-Hallum Capital. Your line is open.

Good afternoon. Thank you for taking our questions, and congratulations on the progress during the quarter. A couple for me. First up, regarding the Otsuka Master Agreement, could you provide an update on the timing or your expectations on when that tech transfer could be complete and when you would maybe start actually manufacturing product for them on that specific agreement? And then regarding that Master Supply Agreement, they obviously have a couple of other branded drugs that are already commercial here in the states. Are you in discussions with them to potentially be manufacturing the others for them as well?

Hi, Matt, David Enloe here. Thanks for the questions. With respect to the first question, I’ll defer to Ryan. But on the other question of a more broad relationship with Otsuka, Obviously, we can’t comment on all the discussions we have, other than to say that it is becoming more and more important to not just them, but to others that they have secure supply chain sourced in the United States going forward. And we look forward to continuing to do a good job with the work that we have and see where that takes us from a relationship perspective. Ryan, do you want to touch on the timing of the current check transfer though?

Yes. So Matt, we’re extremely excited about this relationship. We are still on track with the registration batches for the end of this year and beginning of next year. And we expect to begin manufacturing commercial quantities of the product in the second half of 2022.

Got it. Alright, thank you for that. And then maybe a separate question. It sounds like you had a very successful quarter as far as the pipeline is concerned. Are there any types – or are there any metrics or any, like, a net new number of contracts added during the quarter or anything along those lines that you could provide, just to help us understand the numbers there?

Good question, Matt. I think we certainly showed a lot of progress this quarter with adding new business. We have a healthy pipeline. I would say that the pipeline is kind of in the mid- to high $20 million range of outstanding proposals. And as far as anticipated backlog, it’s in the mid-teens range. So this is really as high as it’s ever been at Recro. So very excited with the progress that we’re making there.

That’s great. Thank you very much.

Thank you, Matt.

Thank you. Our next question comes from Christine Rains of William Blair. Your line is open.

Hi, good afternoon, and congrats on the quarter. My first question is just about 2022 guidance. I imagine you’re not giving any specifics here, but any sort of top line growth targets on an organic and inorganic basis? And then anything on EBITDA margin trajectory or do you expect any unusual nonrecurring items, like, the employee retention credit that you had in 2021 that are expected to affect 2022 financials?

Thanks for the question, Christine. As was the case this year, we expect to continue to outpace the oral solid dose, small molecule growth rate next year, which is in the mid-single-digit range from a top line perspective. And we really have several different revenue pathways that we evaluate, the revenue trajectory for each of those in order to come up with a blended growth trajectory. The legacy commercial revenue from our existing commercial products kind of absent the impact of COVID has historically been fairly stable and is expected to be consistent or perhaps slightly lower next year than this year. And perhaps we’re being a little bit conservative there and we will see more of a rebound in the pediatrics or ADHD space to pre-pandemic levels, but it’s still too early to tell. From a new business growth perspective, we’re expected to outpace the small molecule market growth rate. And as David mentioned, we’re making good progress in this area and you heard the response to where we’re at from a pipeline perspective in backlog. As we look at the capabilities for our growth from the recent acquisition of the San Diego business, there are several growth areas, including the aseptic fill-finish and lyophilization where we’re just getting started. And the industry growth for that, for sterile injectables is in the 9% to 10% range. So overall, from a top line perspective, we feel that we’re well positioned in the market with our long-standing commercial history and robust capabilities to capture this growth curve in the marketplace. And we are a growth story and believe that we’re undervalued in the market. With regard to your question about kind of one-time and expectations from an operating expense level, I think from very macro level, as you’re aware, there is a lot of inflationary and wage pressure, salaries, freight, supply costs are all increasing and creating headwinds from a margin pressure perspective. And what I would say for next year is that, year-over-year, excluding the approximate $4 million to $5 million of federal employment COVID-related incentive tax credits in that we experienced in 2021 or if you use as a baseline for this year, EBITDA would be an estimated $13 million to $14 million, we expect an increase in EBITDA from those adjusted levels as a result of revenue growth and efficiencies from higher utilization, offset through the negative pressures on EBITDA for margins due to wage and inflationary pressure as well as the increased revenues from the IriSys acquisition, which currently has lower margins.

Thanks. That was a really helpful answer, Ryan. Then my second question has to do about a little bit more specifics about the IriSys acquisition integration. First half, can you just give me an idea of the contribution of IriSys on both the top line and perhaps EBITDA for the quarter just to get at that sort of organic growth rate? And then just how is the integration going at a high level? Are you guys actually merging sales teams? Are you deciding them to separate? Are you seeing a lot of cross-selling opportunities with IriSys from your legacy business? Just any color there would be helpful.

Yes, this is David. Let me start with that part first. There is been a lot of activity, and we’re seeing, quite frankly, more traction sooner than I had anticipated just because of the operational synergies of the leadership that we can bring forth to helping IriSys step into more advanced clinical programs. And particularly in the quality and regulatory area, EH&S, all of the things that would be required for a company that was IriSys’ size pre-acquisition to step up to that next level, legacy Recro has been through all of those things for years and years and decades. And so it’s been, for me, very confirming and rewarding to watch the teams worked so well together. Tim Burke coming in as a person I had known from the past and worked with in the past, and that’s been helpful, too, in terms of really bringing forth a little bit more of a, I guess, I’ll call it an industrial approach with more metrics and KPIs. And I would just say that overall, things have been well embraced and we’re moving forward at a good clip. The business development efforts and marketing efforts are singular. They are not separate. They are one team. And we’re seeing a lot of cross-selling opportunities and discussions there. I’m literally going to dinner tonight with one of those. And so I think – I would say, that from a cultural synergy and a fit perspective, we’re ahead of where I would have figured we have been, and this is a place that I have a lot of experiences merging companies together and integrating them into one. Ryan, can you touch on the specific question about the dollars impact this quarter?

Yes. So for the quarter, the IriSys has contributed about $1.5 million in revenue and positive EBITDA associated with that, Christine.

Thank you.

Thanks, Christine.

Thank you. At this time, I’d like to turn the call back over to David Enloe for closing remarks. Sir?

Thank you very much. In the first 9 months of 2021, as our recent contract wins have demonstrated, Recro has now transformed itself from a niche CDMO specializing in oral solid dose work to a true growth CDMO. Today, our organization has offerings in essentially all dosage forms for small molecule therapeutics, locations on both coasts of the U.S., a strong quality and regulatory track record and the benefit of owning and profitably producing verapamil, a successful legacy product. But fundamentally, it’s our employees, new and existing that build and drive our business, and I’m thankful for their commitment and collaboration of our employees, and I look forward to the future successes of our exceptional team. Thank you again for participating today and for your continued support of Recro.

This concludes today’s conference call. Thank you for participating. You may now disconnect.