SCTL: New contracts support high-touch customer strategy

By Beth Senko, CFA

NASDAQ:SCTL

READ THE FULL SCTL RESEARCH REPORT

Societal CDMO’s (NASDAQ:SCTL) high-touch customer strategy continues to gain steam. In early September, Societal announced two new contracts. The first contract supports development of novel immediate and extended-release capsule formulations on an investigational treatment for a range of neurodegenerative disease. Following completion of analytical methods and formulation activities, Societal will manufacture, package, and label the product for phase 1 clinical trials. If the investigational treatment moves ahead, we expect Societal will be well-positioned to continue providing developmental and manufacturing services through the regulatory process, and perhaps through commercialization.

The second contract is to provide developmental/manufacturing services for a topical gel drug candidate to combat hair loss. As with the first contract, Societal will provide analytical and formulation services, as well as clinical trial material manufacturing to support planned Phase 1/2a studies involving the investigational drug candidate.

We are refining our earnings model to reflect Societal’s evolving business mix which is focused on winning early-stage investigational drug development clients, with the goal of growing its revenues not only from new projects, but importantly as the business opportunity for each project grows. We are lowering our FY23 revenue estimate from $104 million to $98.6 million. Our FY23 EPS estimate falls by $0.02 to $(0.15). We are retaining our $4.13 per share valuation.

Societal CDMO is an established small-molecule CDMO taking steps to position itself as an alternative to the big industry players for established and emerging drug companies. Societal believes that its high-touch, customized service offerings will attract clients seeking to partner over the drug development lifecycle. In the past year, Societal has expanded its capabilities, capacity and diversified its customer base, focusing across the pharmaceutical development lifecycle from supplying product for clinical trials, through the regulatory process to commercial scale production. Barely a year into its transformation, Societal has a very specific business plan — built on wisdom, experience, constant operating assessment, and establishing long-term customer relationships – which we believe will mitigate many of the challenges of carving out a bigger share in an industry dominated by large, deep-pocketed companies.

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