Lifecore Biomedical, Inc. (LFCR) is a fully integrated contract development and manufacturing organization (CDMO) that offers highly differentiated capabilities in the development, fill, and finish of complex sterile injectable pharmaceutical products. With over 40 years of expertise, Lifecore has established itself as a trusted partner for global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories.

Business Overview

Lifecore's history dates back to 1981 when it was founded as a developer and manufacturer of hyaluronic acid (HA) products. Over the years, the company has evolved into a diversified CDMO, leveraging its core expertise in HA to expand into sterile injectable pharmaceutical manufacturing. Lifecore's vertically integrated capabilities span from raw material sourcing and development to the production of finished sterile drug products, allowing it to serve as a one-stop-shop for its clients.

The company's operations are primarily divided into two segments: CDMO and HA manufacturing. The CDMO business provides contract development and aseptic manufacturing services to clients, while the HA manufacturing segment produces premium, pharmaceutical-grade HA for use as an active pharmaceutical ingredient (API) and in various medical applications.

Lifecore's competitive advantage lies in its ability to handle highly viscous, complex products and its reputation for quality and regulatory compliance. The company has built a world-class quality and regulatory system, with a superior track record with global regulatory bodies such as the FDA, EMA, and ANVISA. This has positioned Lifecore as the partner of choice for companies looking to safely bring innovative therapies to market.

In 2020, Lifecore initiated a multi-year restructuring plan aimed at improving profitability and redesigning the organization to focus on its strategic assets. This effort was undertaken to enable the company to compete and thrive as a standalone public CDMO business. The restructuring involved multiple rounds of cost reductions and the divestiture of non-strategic assets.

In 2023, Lifecore faced challenges related to its Yucatan Foods business, which it had acquired in 2018. These challenges included an internal investigation and subsequent disclosures and investigations by U.S. and Mexican authorities regarding potential environmental and FCPA compliance matters at the Yucatan facility.

Despite these hurdles, Lifecore maintained its focus on its core CDMO business and continued to invest in expanding its manufacturing capabilities. The company also strengthened its leadership team during this period, bringing in experienced pharmaceutical industry professionals to drive operational productivity and maintain its reputation for quality and compliance.

Financial Performance

In the company's most recent fiscal year ended May 26, 2024, Lifecore reported total revenues of $128.26 million, a 24.2% increase from the prior year. This growth was driven by a 23.0% increase in CDMO revenues and a 27.4% increase in HA manufacturing revenues. Gross profit for the year was $41.85 million, resulting in a gross margin of 32.6%.

However, the company faced challenges during the year, reporting a net loss of $12.01 million, compared to a net income of $12.01 million in the prior year. This was primarily due to increased operating expenses, including a $1.66 million charge for restructuring and merger-related activities, as well as a $34.79 million charge for other non-operating expenses, which included a $39.50 million gain on the sale of a business.

For the most recent quarter ended November 24, 2024 (Q2 fiscal 2025), Lifecore reported revenues of $32.56 million, an 8% increase from $30.15 million in the prior-year period. This increase was primarily due to a $1.9 million rise in CDMO revenues, which comprised $3.8 million of higher sales volume from the company's largest customer, partially offset by $1.9 million of lower sales volume from other CDMO customers. Additionally, HA manufacturing revenues increased by $0.5 million, primarily from increased revenue from a customer due to timing, with increased shipments in the second quarter of fiscal 2025.

The company reported a net loss of $6.57 million for Q2 fiscal 2025, compared to a net income of $14.22 million in the prior-year period. It's worth noting that the prior-year period had included a large favorable $20.7 million non-cash fair market value adjustment on the debt derivative liability.

For the six months ended November 24, 2024, Lifecore reported revenues of $57.3 million, representing a 5% increase compared to the same period in the prior year. Adjusted EBITDA for this period was $4.7 million, a $1.3 million increase from $3.4 million in the prior year period.

Liquidity and Solvency

As of November 24, 2024, Lifecore had $9.46 million in cash and cash equivalents. The company's debt-to-equity ratio stood at 0.7969, while its current ratio was 2.32 and quick ratio was 1.21, indicating a solid liquidity position.

Lifecore has a Term Loan Credit Facility with Alcon with $165.27 million outstanding as of November 24, 2024, at an effective annual interest rate of 22.5%. The company also has a Revolving Credit Facility with BMO with $8.5 million outstanding as of the same date, at an effective annual interest rate of approximately 8%. Approximately $20.9 million was available under the Revolving Credit Facility as of November 24, 2024.

Lifecore's operating cash flow for the fiscal year ended May 26, 2024, was -$217,000, and its free cash flow was -$18.14 million, reflecting the company's significant capital expenditures and restructuring activities during the year.

Product Segments

Lifecore's business is primarily divided into two main product segments: CDMO services and HA manufacturing.

CDMO Services: This segment involves providing contract development and aseptic manufacturing services to customers. Activities include formulation technology development, material component definition, analytical method development, filling optimization, packaging design, stability studies, process validation, clinical production, and production of commercially approved products. During the three months ended November 24, 2024, CDMO revenues were $25.61 million, an 8% increase compared to the prior year period.

HA Manufacturing: Lifecore also generates revenues from the development and manufacture of premium, injectable grade sodium hyaluronate (HA) products. This segment has benefited from the growing knowledge of HA's unique characteristics and Lifecore's reputation as a trusted manufacturer of pharmaceutical injectable grade HA products. For the three months ended November 24, 2024, HA manufacturing revenues were $6.95 million, a 7% increase compared to the prior year period.

Risks and Challenges

Lifecore faces several risks and challenges that investors should be aware of. The company operates in a highly regulated industry, and any failure to maintain its quality standards or comply with regulatory requirements could result in significant fines, penalties, or the loss of existing contracts. Additionally, the company's business is dependent on a limited number of large customers, with its top three customers accounting for 40% of total revenues in the most recent quarter.

The company also faces competition from other CDMOs, as well as the potential for customers to develop their own in-house manufacturing capabilities. Lifecore's ability to maintain its competitive edge and secure new business will be crucial to its long-term success.

Outlook and Growth Opportunities

Despite the challenges faced in the previous fiscal year, Lifecore remains optimistic about its growth prospects. The company has outlined a three-pronged strategy to drive a 12% revenue CAGR and increase EBITDA margins to over 25% over the next few years.

This strategy involves maximizing its existing customer relationships, advancing programs within its development pipeline towards commercialization, and driving new business through expanded business development efforts. To support this growth, Lifecore has made significant investments in its manufacturing capabilities, including the recent installation of a high-speed, multi-purpose filler that has doubled the company's available capacity.

Lifecore is focused on driving profitable growth by expanding its CDMO capabilities to meet increasing partner demand, as well as pursuing new product development and commercial manufacturing opportunities for sterile injectable products. The company continues to make strategic capital investments to extend its formulation and filling capacity and capabilities, in order to attract new contract filling business and support the growth of its existing customer relationships.

For the full fiscal year 2025, Lifecore has reiterated its previous revenue guidance range of $126.5 million to $130 million. The company appears to be executing well based on the Q2 FY2025 results, beating both revenue and adjusted EBITDA in the first half of the year compared to the prior year.

Conclusion

Lifecore Biomedical is a diversified CDMO with a strong track record of providing high-quality services to the pharmaceutical industry. Despite facing some challenges in the previous fiscal year, the company has outlined a clear strategy to drive long-term growth and enhance its profitability. With its expanded manufacturing capabilities, diverse customer base, and strengthened financial position, Lifecore appears well-positioned to capitalize on the growing demand for outsourced pharmaceutical development and manufacturing services.