Chaska’s Lifecore looks to growth in coming years after emerging from delisting challenge

The publicly traded bio-tech company’s new CEO, Paul Josephs, said a new isolated filler can double revenue.

The Minnesota Star Tribune
November 1, 2024 at 11:30AM
Aseptic filling technicians Jacob Tereau and Linda Sengvongsot run some tests on Lifecore Biomedical’s new filler equipment that they expect will double their capacity. (Glen Stubbe/The Minnesota Star Tribune)

Lifecore Biomedical, a publicly traded biotech company with a nearly 60-year history in Minnesota, has stumbled through the 2020s.

Nasdaq had threatened to delist the Chaska-based company from the stock exchange for submitting financial documents late. It has laid off 9% of its workforce and amassed roughly $100 million of debt.

Now a new high-tech contraption will double Lifecore’s revenue-generating capacity, CEO Paul Josephs said, and the company will aggressively pursue opportunities to make GLP-1 drugs, which can be used for weight loss and diabetes, for other pharmaceutical corporations.

Since Josephs arrived at the company last spring, Lifecore has regained Nasdaq compliance and raised more than $24 million through shareholder support.

“I really want to focus in on growth,” Josephs said in an interview, “and how we continue to leverage this operation and be a great employer in the Minneapolis area.”

Lifecore is a contract development and manufacturing organization that produces injectable drugs for pharmaceutical companies, as well as the substance sodium hyaluronate. It has operated in Minnesota since 1965 and was a publicly traded company until a private equity group bought it in 2008. Soon after, Lifecore was acquired by California-based public company Landec, which in 2022 changed the entire company’s name to Lifecore Biomedical and moved to Minnesota, selling off a food business Landec owned in the process.

Since the shift, Lifecore has faced bumpy balance sheets. It posted losses of roughly $100 million in the financial years ending in May 2023 and May 2022, according to an annual report. While it reported net income of $12 million for the most recent year, it has amassed more than $100 million in total debt. However, Lifecore may be heading toward an inflection point, Josephs said.

Josephs said it took the company less than a month to raise $24.3 million in private placement of common stock. He said it was “a great vote of confidence by our shareholders, both existing and new.”

And Michael Petusky, a Barrington Research analyst, said an important piece of new equipment — a high-speed, multipurpose, five-head isolator filler — may boost business for the company.

“It’s sort of like the old ‘Field of Dreams’ movie: If you build it, will they come?” Petusky said. “And in this case, they certainly are hoping that they’ve built capacity and now pharmaceutical companies will come.”

Late listings

As an industry, contract development and manufacturing organizations have faced turbulence since the start of the COVID-19 pandemic.

Matthew Hewitt, an analyst at Craig-Hallum Capital Group, said they performed better during the early years of the pandemic, as governments invested in vaccine manufacturing. As the pandemic shifted, the funds dried up. Silicon Valley Bank’s blowup in March 2023 also disrupted many small pharmaceutical companies and biotech companies that could have hired Lifecore to produce their products.

“Lifecore wasn’t immune,” Hewitt said. “Their customers were facing some of the same types of headwinds.”

In 2023, after the company said it was selling its food business to focus on the biotech operation in Minnesota, Lifecore announced it was exploring strategic alternatives as it faced declining sales. That may have also knocked revenue, Josephs said.

“When you’re trying to look to sell the business, it’s hard to close new business” as clients hesitate to take up contracts with companies that may be about to change ownership, he said.

Around this time, Nasdaq issued a delisting warning to the company after it was late to file a quarterly financial report with the Securities and Exchange Commission.

The delay in filling lasted for about a year, Petusky said, and followed the accounting challenges that the company faced as it divested its food businesses. Companies sometimes fall behind on submitting required documents with the Securities and Exchange Commission for weeks or a month, Petusky said, “but it normally doesn’t happen to the extent it happened here.”

Josephs, who wasn’t with Lifecore at the time, called the issues that led to the delisting warning “really minor in nature and not substantive.”

Paul Josephs, CEO of Lifecore Biomedical, at the company's headquarters Tuesday, Oct. 29, 2024 in Chaska. (Glen Stubbe/The Minnesota Star Tribune)

“But it still led to a lot of work to clean up” between Lifecore and its auditor at the time, Josephs said.

The company said in September that it regained compliance with Nasdaq listing requirements.

Clean up

After spending three decades working for contract development and manufacturing organizations, including as a CEO, Josephs arrived as chief executive of Lifecore in the spring after his predecessor, James Hall, retired. Petusky called Josephs an “energetic guy.”

“He absolutely has a vision to take this company to a much different level in terms of the types of business they contract,” Petusky said.

Josephs said the vision includes expanding contracts with some of the largest pharmaceutical companies.

The company’s new isolator filler, he said, “opens the aperture for us to promote and sell to and support the world’s leading pharmaceutical companies.” This includes companies making GLP-1 drugs, which are are part of Lifecore’s business development pipeline.

The filler machine looks like it comes out of a NASA lab. Technicians reach into the machine through built-in gloves that protect the aseptic device from contamination. The machine fills and finishes off syringes, vials and cartridges through five heads, the company said, reporting that it more than doubles Lifecore’s production capacity. The machine is an isolator, meaning it is sealed from potential contamination.

Lifecore, Hewitt said, added capacity to a market that needs it as GLP-1 drugs have increased demand on contract development and manufacturing organizations. But the company still faces a pile of debt, which Josephs said is “not ideal.”

“It’s like an elephant: You eat it one bite at a time,” he said.

Josephs said it took less than a month to raise the $24.3 million from shareholders — a vote of confidence, he said. “We felt like an equity raise was the appropriate thing to do” to be a better supplier, customer and employer, he said.

The company also laid off 46 employees in July to create the right overhead structure. He suggested similar cuts aren’t planned.

Josephs said he expects revenue to grow roughly 12% annually over the next three to four years.

“With that raise,” he said about the shareholder funds, “we see for the foreseeable future that we have enough liquidity and are comfortable with our financial position, until we reach what we see as being a serious inflection point from a revenue perspective over the next two to three years.”

about the writer

Victor Stefanescu

Reporter

Victor Stefanescu covers medical technology startups and large companies such as Medtronic for the business section. He reports on new inventions, patients’ experiences with medical devices and the businesses behind med-tech in Minnesota.

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