Good morning. My name is Lucas Baranowski, and I work with Paul Knight here at KeyBanc on the Life Science Technology team. We have with us today Paul Josephs, CEO of Lifecore Biomedical, ticker LFCR. If any of our audience members have questions during the presentation, they are welcome to type in the chat box or send an email to me at lucas.baranowski@key.com. With that, I guess we can get it started. Paul, in recent years, Lifecore has divested several businesses and, you know, really transformed itself into a pure play life sciences company. Since some of our audience might be unfamiliar, could you tell us when the last of those divestitures happened, and give us just a quick overview of your two remaining business segments?
Happy to. Good morning and thank you for including us, Lucas and Paul. We're excited to be here and participate in the conference. Lifecore Biomedical was embedded within a food conglomerate. It traded under a company named Landec. The divestiture of the food businesses took place in 2022 and 2023. Basically, avocados and salads that were divested and then left a standalone CDMO named Lifecore Biomedical. The two portions of our business are hyaluronic acid fermentation, so that was really the advent of the business 40 years ago. Think about hyaluronic acid, you think about it from a general perspective, you would think about it in some of the dermatological products that you see over the counter.
The hyaluronic acid that we make is really highly sterile injectable grade used in sterile injectable products, usually for ophthalmic use, orthopedic use, and in some cases, injectable dermal fillers. It's the other side of the business is really our sterile injectable business contract manufacturing. We make sterile injectable products on behalf of other pharmaceutical companies, both from a development and commercial manufacturing standpoint. Really the fermentation side, the hyaluronic acid, was really the advent into the CDMO side of the business. Because most of the products we have now that are commercialized are used in ophthalmics, orthopedics or as I said, dermal applications. We're really looking to, at this point, expand into other modalities, by and take advantage of the strong growth portfolio or platform that's out there in the CDMO injectable space.
You know, given you joined Lifecore as CEO only two years ago, maybe you could just give us a quick overview of your own background and what caused you to come on board?
Yeah. I've been in the pharmaceutical business for 35 years, it's my 32nd year in the CDMO industry, so I had seen a lot. What attracted me to Lifecore was I saw a company with great capabilities in the sterile injectable space. All the significant capacity investment or capacity investments had been made. The capacity just needed to be filled. Strong quality track record, the ability to support multiple geographies. Coming at an inflection point, a troubled time in the past, I just saw an opportunity to grow and build something special. You know, I've been here two years, and everything I've seen has reinforced my original thesis in joining the company. I couldn't be more excited about where we're going.
Obviously, we saw the market stock market reaction yesterday with regard to our near-term earnings, and I understand the market's reaction, but it's really one of timing. What hasn't changed for us is the strength of our commercial business, the strength of our development portfolio, and then the strength and momentum we're building within our business development team and the progress we're making with regard to margins. You know, for us, we've reinforced our mid-term guidance. We upped the range for our revenue projections for our mid-term to $212-$225 because of the conviction we have in the business. Now, it's our time to execute.
Right now, I believe all your operations are at one site in Chaska, Minnesota. You know, you mentioned that the big CapEx is kind of behind you. What are you going to be at in terms of capacity utilization here in 2026 versus when you arrived or a few years ago?
We're at 20% capacity utilization today. We believe through the midterm, that 2029 target period, we will be at 60% capacity utilization based on the growth in our commercial business and then the commercialization of our late-stage pipeline. We see that incremental capacity utilization helping to continue to not only drive the top line, but improved EBITDA margins over time as we look to achieve that 25% EBITDA margin target that we reinforced or recommitted to yesterday.
If we were to look out a little further, is 80% utilization about the right rate for a fully booked, fully ramped fill-finish site?
You know, I think that's a good target. That's where, you know, as you're starting to approach that 80% range, you wanna be thinking about your next long-term investment in capacity, and we would look to that. We have a site three, as we characterize it, that is really a greenfield that we could build incremental capacity into, to go beyond the $300 million in revenue-generating capacity we have in place today.
During your Analyst Day last August, you know, I believe you laid out some long-term targets. Obviously, you know, reiterated those yesterday. But since some of our audience might be unfamiliar, could you just remind us again what those targets are and what would you say are some of the biggest things that need to happen to achieve them?
Great. Thank you for that question. So we reiterated yesterday and then during our Analyst Day, we have a 12% revenue CAGR as our target, from 2025 through 2029, on the top line, and then improving EBITDA margins from the time we did our Analyst Day from 15%, to greater than 25%. We've seen continued progress as we announced it in our earnings call yesterday. We've improved EBITDA margins during the transition period to 17%. We anticipate and project increased and improved EBITDA margins here in 2026, moving gradually towards that greater than 25% in 2029. The big things that need to happen, really three things.
One, we anticipate and project that our largest customer will more than double their fill-finish demand, starting in the next few couple of years and then driving through 2029. Two is the commercialization of our late-stage pipeline. We have 10 programs in late stage now, in phase III or equivalent, that we believe will be impactful, based on a modest conversion rate of 50%. That's number two. Number three is the continued addition of new programs to our development pipeline that may commercialize in that 2029 timeframe to help overdrive our pipeline and provide that next wave of growth, in 2029 and beyond.
At that same event, it also looked like your pipeline was starting to shift toward biologics and away from small molecule. Would you say that it's been an intentional shift?
I'd say it's intentional in the sense that we have a broad business development strategy today. I think it was more. I've said this on a number of occasions, Lifecore, prior to my joining the organization, was took a more farming approach to business development, catching opportunities, cultivating existing customers. Existing customers and prospects, excuse me, existing customers are critically important to us. We wanna continue to harvest them and farm our existing network. We've been employed a very aggressive business development strategy that is focusing on hunting for new business, which has expanded the modalities and markets in which we're competing, whether it's biologics or other small molecules.
When we look at those opportunities that are being signed for biologics, would you expect those to be higher margin than what you've signed historically?
I would say this, that Lifecore excels where the value proposition includes strong technical expertise and a high-quality track record in low-cost commodity generic products or products that are exposed to generic competition, low price. That's not where we're gonna compete. We think that, you know, we provide a significant advantage or value proposition to our customers, where again, technical expertise is required and customers value a high-quality organization. In those cases you can command good pricing or margin equation on the opportunities you win.
Now, I know you've only announced one GLP-1 win so far, but would you say there's a lot of GLP-1 opportunities that are still in the sales pipeline?
You know, I wouldn't say a lot, but there is a select few that we're working to compete on. For some of the larger multinational pharmaceuticals, they're gonna keep that within their own network. You see a number of them announcing their investments in capacity here over the past year. But we have others in our pipeline. The one thing I will say is we don't need to meaningfully participate in the GLP-1 market in order to be successful. Obviously, it's one that we do wanna compete in, but certainly we don't need to meaningfully participate in order to be successful. We're very happy with the program we have today. We think it will be a meaningful part of our future, should it gain regulatory approval in that 2029 time period.
Separately, you've also signed two major tech transfer agreements in recent months. How should we be thinking about the magnitude of the revenue from those contracts and also the timing of when that could start to flow?
Yeah, we couldn't be more excited about those two opportunities. You know, I think it's, it speaks to some of the trends that are going on in the market, regionalization of manufacturing to the United States, and two is, you know, the increase in, I'll say, FDA regulatory enforcement, where there's troubled quality track record at a site that led to the opportunity coming to our site. I would say both those opportunities have the opportunity, the potential to be top five customers for us at Lifecore. I think if you look at our late-stage pipeline at peak sales, they both have the opportunity to be more than $10 million, potentially be more than $10 million in annualized revenue. Again, we couldn't be more excited about them.
Time period to qualification or commercialization at Lifecore, we're targeting commercial launch in 2028, so it's approximately a two year, 24- 30 month time process. You know, we think of 2028 in concert with our customer will be commercially manufacturing at Lifecore.
Just to clarify, when you say those could be top five customers, each of those customers today has only that one tech transfer opportunity with you, or they're doing other business already?
One of the customers, this is their first opportunity with Lifecore. The other one, this is their second opportunity with us. They're both in development at this point.
Excellent. Very exciting. You know, we also saw an article, maybe a month or two ago estimating that pharma and biotech is planning to spend a total of $370 billion on reshoring over the next five years. Would you say those recent wins have been driven primarily by reshoring, or how should we be thinking about that opportunity in the coming years?
One of the opportunities was driven by reshoring. I would say that certainly I've said this on a number of different occasions, the momentum we're seeing for the regionalization or reshoring of manufacturing here to the United States I believe to be real. Within our pipeline, we have opportunities that we're late stage in commercial site transfer opportunities that we're pursuing that are Asia Pacific as a region. Europe, I mentioned one. Israel is another because of Middle East unrest. India for a complex injectable program. You know, we are seeing that, and we're seeing it from multiple geographies.
Let me scroll down here. You know, I know it's not really reshoring, but are you also seeing business come up for bid that's coming out of the three Catalent facilities that got acquired by Novo Holdings?
Yeah. Absolutely. We looked at this as being, you know, a longer term trend, the trend that I would say is a three to five year sort of event because everything that I've seen and heard through the industry is that Novo was gonna honor existing contracts and agreements, and over a period of time, those programs would ultimately exit. I will say this, and I think it's public information, the Bloomington site has gone through some regulatory challenge or quality challenges with the FDA, which may accelerate movement or transition of programs out of that site. You know, that is a fact that'll prove itself out over a period of time.
I probably should have asked this earlier, but do you have other Tech transfer opportunities in the pipeline, and have you quantified how many of those are still in the sales pipeline?
We absolutely do. It's a significant number. We expect to win more commercial site transfer opportunities this year, continuing to build on the momentum that we've seen at the end of 2025. I don't have a specific number for you, but it's a meaningful amount that we see in our pipeline.
If we were to look out at other CDMOs in the space, not just Catalent, would you say that your pricing is on average above or below other CDMOs that you compete with?
I would say it's competitive. You know, I think that the one thing we do not sell on is it typically is price. You know, we continue to sell based on our the value add that we bring to the party, if you will. Our technical capabilities, which a large multinational pharmaceutical company recently said is world-class. Our quality track record, we had a great FDA inspection a little under a year ago. We had 11 audits this past during our transition period, which were very successful. Those are key areas of differentiation. The other thing that I'm very proud of is the leadership team we've put in place.
You have approximate or approaching 150 years of total experience in the CDMO and pharmaceutical experience, so you know, every customer comes to us with a problem. It's either a development problem or a commercial problem, and it's our job as a CDMO to solve them. I think that's where we have the opportunity to differentiate. Low cost, high commodity-oriented generics, as I mentioned before, you know, that we're not gonna compete on those. We'll always be higher priced, and it's not a good fit at Lifecore.
Separately, you also have that large contract with Alcon, that spans both fill-finish and HA. Can you remind us what you've said publicly about the magnitude of the step-up expected in calendar 2027? And also, would you expect that step-up to happen right out of the gate in January of that year, or would it have to kind of ramp over the course of the year?
Yeah. Great question. The agreement with Alcon contemplates more than doubling of their fill-finish demand through the term of the agreement through the end of the decade. The ramp up in 2027, we're working closely with our customer, and we'll be determining the exact timing of that over the coming months.
I guess on a separate front, I believe you also went live with the new ERP system just a couple of months ago. How has that implementation been progressing so far?
Couldn't be more proud of the team. They did a tremendous job. We successfully launched our ERP system, January 5th or 6th , I can't remember the exact date. It's enabling the business at this point. Things are running smoothly, no major hiccups. As we move throughout the year, we think that it'll continue to improve the productivity of the business or the financial management of the business going forward. Excited about having the system in place, and again, really proud of the team for the successful launch. We know that there's a lot of ERP launches that can go the wrong way, but this one certainly did not because of the quality of the team and the engagement they had in bringing this thing over the goal line.
Likewise, are there any other cost initiatives that are planned for 2026?
Absolutely. We have a number embedded within our annual operating plan or budget. Late last year or in the fourth quarter, we brought on a head of business transformation, strong industry veteran, to help us move to that next phase of value creation, and we're really starting to see the improvement within the organization. A lot of the things we've done over the past 24 months have been what I'll characterize as the low-hanging fruit, and now we're at that stage where we wanna go to the next phase of our evolution, which will be, you know, really opportunities that we earn through improved processes, systems, et c. We're excited to have Amber on board to help drive that moving forward. We still see a lot of opportunity there, as we move forward to improved margins and achieving that 25%+ EBITDA margin target.
I guess while we're on that topic, I believe you said that you're expecting to generate over $10 million in free cash flow this year, 2026.
Yeah.
Is that kind of dependent upon those cost initiatives, or would those be more like potential upside to that?
Well, some is built into our plan. We obviously, as any good organization does, we have stretch targets that we're working against, which would be upside toward that $10 million.
Maybe just, you know, for the benefit of our audience, could you provide an update on how many sales reps you currently have and how many of those you would consider to be at full ramp?
Yeah. Our sales and marketing team is a team of seven. We have inside support along with an outside field force. I would say this, that the team is running at, you know, I would say 60%-70% of the capacity, and we're, they expect more, we expect more, but we're very pleased with where we are and the momentum we're building. We'll continue to see that ramp throughout 2026 and expect continued improvement. We have a mantra or a cadence that we're working against. We wanna close double-digit deals a year. We wanna be in a situation where we're part of five filings a year, and we're launching multiple programs a year. You can see that in our late-stage pipeline that we shared yesterday, that really starting to manifest itself in 2028 and then building in 2029 and 2030, which again gives us great conviction in our midterm projections.
Going forward, do you expect to hire additional salespeople, or are you more focused on partnerships like the one you recently signed with PolyPeptide?
Yeah. We don't intend to hire additional sales reps. I think what COVID has, you know, really proved that you can cover more territory now than you could prior to COVID, because there's now a big reliance or a significant reliance on use of this medium, whether it's Zoom or Teams, for a lot of meetings. It allows us to cover significant geography. It allows us to cover the international markets a lot easier. We'll continue to lean into partnerships like PolyPeptide, where we think that they'll be advantageous to the value proposition providing our customer.
You've hinted at some international opportunities a couple times throughout this conversation. Are you planning to put feet on the street overseas yet, or what's the strategy on the international front?
No plans to put feet on the street internationally at this point, but we plan to create a very strong network. You know, I've been in the business 30+ years. Mark DaFonseca, our Chief Commercial Officer, has been in the CMO side of the business for more than 20. We wanna leverage that network to create strong partnerships where we can have a level of reciprocal referrals that would benefit the business. The other thing that I think is working in our favor is there's a number of domestic companies who may have had a European strategy for their supply chain who are now moving to the United States. While we have programs moving from multiple markets, it doesn't mean that they're not domestic organizations that we're supporting.
you know, stepping back and just looking at the market as a whole, I believe you have a mix of both large and small pharma/biotech customers, what are you seeing right now in terms of customer interest in bookings for each of those two groups?
Strong in both. I think that for Lifecore the large multinational pharma piece is a little new. We've obviously had some success here during the transition period and expect to have more success this year with big pharma. It's not a market that the company had really prospected before, but it's certainly an area that we're prospecting very aggressively with our talented sales and marketing team.
When you look at that partnership you just discussed with PolyPeptide, do you see that as being more centered around the large pharma opportunities? Also do you see it, you know, potentially bringing in some more international opportunities?
It would be yes. You know, I think that both large pharma and specialty pharma, and I think it could support potential opportunities from international markets. We're excited about it. You know, I still think we're in the advent of the partnership and relationship. Both teams are working very well together.
Similarly, I believe you have the ability to fill vials, cartridges, and syringes. Are you seeing a trend one way or the other in the market right now?
Yeah, I think that certainly it's from a new opportunity perspective, development perspective. We see a lot of activity with syringes and cartridges, less so in your traditional vials. I also think that, you know, vial capacity in the market is fairly extensive, but maybe less so as it relates to syringes and cartridges. That's where we're competing for the most part.
We've seen other fill-finish providers sign contracts as long as 10 years with customers, but I believe that's relatively rare. How long are your typical contracts?
Well, we're excited. One of our late stage programs, you know, that we expect to launch in 2027, we signed a 10 year agreement with that customer last year, reflecting I think it reflects their commitment to Lifecore and our commitment to them, so we couldn't be more excited. What I would tell you is, that agreements range between five and 10 years typically.
Five to 10. With those contracts, are you typically able to pass on costs related to tariffs, or how does that work?
Yeah, you know, that it's somewhat a new phenomenon on tariffs and, you know, I think that the good thing is all partners are being reasonable as it relates to passing on any potential tariffs. We certainly haven't been exposed to anything meaningful to date. The agreements typically have some level of industry-related or market-related price escalators on an annual basis, such as PPI, the Pharmaceutical Producer Price Index.
We do have one investor question coming through right now. Does the $300 million revenue capacity at your site like limit the type of customers you can take on or your attractiveness, you know, to a larger fill-finish firm?
It doesn't. It may dictate the type of opportunity that we get. We have 45 million units of revenue generating capacity today. Maybe a little bit more than that based on mix, but 45 million units. If you have a 100 million unit opportunity, it's likely not coming to Lifecore unless we're having a broader strategic discussion about moving into our site three. I would say a high volume nine-figure opportunity of which those are limited, those are the ones that wouldn't be appealing to Lifecore or to our potential customer or prospect.
I know we're jumping around a little, you know, but do you have any FX exposure with any of your contracts?
No, they're all based in U.S. dollars.
You've touched a bit on your regulatory track record, no warning letters or anything like that. I think in the past you've also talked about your expertise with more viscous drugs potentially being a selling point. Is that still the case today?
Yes, it is. I think that's a strong selling point. Our ability to manage and not only develop but commercially manufacture highly viscous programs. If you think about hyaluronic acid as a critical ingredient going into ophthalmics and orthopedics or anything that goes into the eye or anything that goes into a joint, whether it's your knee, elbow, ankle, wrist, it has to be highly viscous because it needs to stay within the area you're looking to heal, for lack of a better term. You know, our ability to manufacture and fill programs that can be as thick as honey or molasses is a key differentiator for us and really goes to the technical expertise we have as an organization. Has really allowed us then to advance into more water-based programs such as the commercial site transfers and the GLP-1 that we closed during the transition period.
Well, Paul, given we're coming up on the end of time here, are there any other topics that you wanted to hit or things you wanted to convey here today for investors?
Lucas, no. First of all, thank you for the conversation. You know, the near term environment may have its ups and downs, but we have a clear strategy that we're working against. You know, as I mentioned before, strong commercial base which we've seen escalations in volume from our largest customer, a promising and exciting late stage pipeline, and strong momentum with the business development team, and our margins are improving. You know, it's all about execution on our side, and I couldn't be more excited about the future for Lifecore Biomedical.
Okay, that's excellent, Paul. Really great having you here today.
Thanks so much. Have a wonderful day.
Yeah, you too.