Societal CDMO, Inc. (NASDAQ:SCTL) is a bi-coastal contract development and manufacturing organization (CDMO) with a diverse portfolio of capabilities spanning pre-investigational new drug development to commercial manufacturing and packaging for a wide range of therapeutic dosage forms, primarily focused on small molecules. The company's expertise in solving complex manufacturing problems has positioned it as a leading CDMO, providing development, end-to-end regulatory support, clinical and commercial manufacturing, aseptic fill/finish, lyophilization, packaging, and logistics services to the global pharmaceutical market.
Business Overview
Societal CDMO operates two state-of-the-art facilities totaling 145,000 square feet in Gainesville, Georgia and San Diego, California. The company's manufacturing and development capabilities include product development from formulation through clinical trial and commercial manufacturing, with specialization in modified-release technologies, handling of high-potent compounds and controlled substances, liposomes and nano/microparticles, topicals, and oral liquids. Societal CDMO also offers its customers clinical trial support, including over-encapsulation, comparator sourcing, packaging, labeling, storage, and distribution.The company's key commercial products include Ritalin LA®, Focalin XR®, Verelan PM®, Verelan SR®, Verapamil PM, Verapamil SR, and Donnatal liquids and tablets. Societal CDMO also supports numerous development-stage products for its customers.
Financials
For the full year 2022, Societal CDMO reported annual revenue of $94,635,000, a net loss of $13,274,000, annual operating cash flow of -$3,338,000, and annual free cash flow of -$11,575,000. The company's quarterly performance in 2023 has been mixed, with revenue of $23,590,000 and a net loss of $4,592,000 in the third quarter.The company's financial results have been impacted by a slowdown in clinical development activities, higher customer attrition, and development program delays, leading Societal CDMO to revise its 2023 earnings and cash projections during the second quarter. In response, the company took actions to amend its debt agreements and implement cost-cutting measures, including a strategic reorganization and reduction in force.
Liquidity and Capital Resources
As of September 30, 2023, Societal CDMO had $8,156,000 in cash and cash equivalents. The company's credit agreement with Royal Bank of Canada contains certain financial covenants, including minimum liquidity requirements. Despite these measures, the company's ability to continue as a going concern remains a concern, as its losses and accumulated deficit of $278,123,000 as of September 30, 2023 raise substantial doubt about its ability to fund its operations without obtaining additional debt or equity financing. Societal CDMO may need to seek further financing or pursue strategic alternatives to address its liquidity challenges.Operational Highlights
During the third quarter of 2023, Societal CDMO achieved its first shipment of commercial batches for its customer Otsuka. The company also experienced a catch-up in shipments to its largest customer, Teva, due to the continued pull-through in demand for the Verapamil SR products, as well as an increase in shipments to Lannett for Verapamil PM.However, these positive developments were offset by decreases in shipments to Novartis and InfectoPharm due to timing of customer orders. The company also incurred $1,059,000 in restructuring costs related to its strategic reorganization, which included a 26-employee reduction in force.
Risks and Challenges
Societal CDMO faces several risks and challenges that could impact its future performance. These include:1. Dependence on a limited number of large customers: The company's three largest customers accounted for 75% of its revenue in the first nine months of 2023, making it vulnerable to changes in demand or financial stability of these key customers.
2. Regulatory compliance: The company must maintain strict compliance with cGMP and DEA requirements in the manufacture of pharmaceutical products, which could result in costly remediation efforts or lost business if not properly managed.
3. Macroeconomic and supply chain disruptions: The company is exposed to the effects of global economic conditions, inflation, rising interest rates, and supply chain challenges, which could disrupt its operations and customer demand.
4. Liquidity and financing needs: Societal CDMO's substantial accumulated deficit and ongoing losses raise substantial doubt about its ability to continue as a going concern without obtaining additional financing or pursuing strategic alternatives.