Q3 2022 Societal CDMO Inc Earnings Call

November 9, 2022

[music].

The conference will begin shortly.

Good day, ladies and gentlemen, and welcome to the societal C. D. M O third quarter 2020 financial results Conference call. At this time, all participants are in a listen only mode.

Later, we'll conduct a question and answer session and instructions will follow at that time as a reminder, this conference call is being recorded.

I would now like to hand, the conference over to Stephanie Diaz Investor.

Investor Relations group. Please go ahead.

Thank you Hello, and thank you for joining us on today's call, we have David and low President and CEO and Ryan Lake Chief Financial Officer.

Today, we will be providing an overview of societal contract development and manufacturing business, including updates on corporate activities and financial results for the quarter and nine months ended September 32022.

After our prepared remarks, we will welcome your questions.

Before we begin I'd like to caution that comments made during this conference call. Today November nine 2022 will contain certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Concerning the current beliefs of the company, which involve a number of assumptions risks and uncertainties.

Actual results could differ from these things and the company undertakes no obligation to revise or update any statements made today.

I encourage you to review all of the company's filings with the Securities and Exchange Commission concerning these and other matters.

Our earnings press release, and this call will include discussion of certain non-GAAP information.

You can find our earnings press release, including relevant non-GAAP reconciliations on our corporate website at societal C. D M O dot com.

Is that I will turn the call over to David Enlo societal President and CEO .

Thank you Stephanie and thank you to everyone participating today via webcast.

During the third quarter the company made important advancements across the business, notably we signed an agreement to sell the company's excess land in Georgia to a residential home developer the proceeds of which will allow us to bring down our current debt balance and strengthen our overall financial position.

During the quarter. The company also secured the highest number of new business wins for any quarter in our history.

Existing and new clients further transforming our pipeline and enhancing our customer base and finally, we successfully renegotiated the agreement with our marketing partner <unk>, providing the company with improved economics with respect to sales of our legacy <unk> product as well as potential manner.

Factoring in projects in the future.

We are extremely pleased with the progress during the period and I will provide a more detailed review of our Q3 2022 achievements following an overview of our financial results for the quarter and the nine months ended September 32022 for that I will turn the call over to Ryan.

Thank you David Good afternoon, everyone before I begin in addition to the brief financial overview I'll provide on the call today additional details on our financial results for the third quarter and nine months ended September 32022 are included in our press release issued prior to this call and in our Form 10-Q.

Which is on file with the SEC I'll.

I'll begin with an overview of our financial results for the third quarter.

Revenue for the quarter ended September 32022 were $21 6 million. This represents a 19% increase compared to revenues of $18 2 million recorded during the prior year period and marks one year since the <unk> acquisition, so going forward financial results will represent organic.

Growth in the business.

The increase of $3 4 million was primarily driven by an increase in European Ritalin la demand from the company's new customer in fact a farm.

Revenue, resulting from the acquisition of viruses as well as higher revenues from the Companys clinical trial materials business.

These increases were partially offset by declining revenues from all of that is commercial sales of our rapid mill pm products compared to the prior year.

It improved due to better economics from a renegotiated agreement for <unk> and a return of volumes post the rebalancing of inventory within the trade during Q4 of 2021 in Q1 of 2022.

Cost of sales for the quarter ended September 32022 was $16 1 million compared to $13 2 million for the comparable period of 2021.

The increase of $2 9 million was primarily due to costs associated with operating the San Diego facility acquired from irises and increased costs tied to increased manufacturing revenue during the quarter.

In addition in 2021 the company received certain employment incentive tax credits that were not repeated in 2022, resulting in increased expense in 2020 to these.

These increases were partially offset by the reallocation of expenses, reflecting the post acquisition organizational structure.

Selling general and administrative expenses for the third quarter were $5 1 million compared to $4 6 million recorded in the 2021 period.

The increase of <unk> 5 million was primarily related to increased personnel costs tied to the reallocation of expenses and integration costs associated with the irises integration.

Specifically effective October one 2021 certain employees, who previously supported the company's plant operations now support the company's multi site organization structure and operations.

Accordingly expenses associated with these employees have been reclassified from cost of sales to selling general and administrative expenses.

Interest expense was $3 5 million for the three months ended September 32022, a decrease compared to $3 8 million for the comparable period of 2021.

The decrease of <unk> 3 million was primarily due to increased capitalized interest and the extension of the maturity date of our term loans, which deferred some of the noncash amortization of financing expenses to future periods.

These decreases were partially offset by an increase in the variable labor component of interest on our term loans.

For the quarter ended September 32022, the company recorded a net loss of $3 3 million or <unk> <unk> per diluted share as compared to a net loss of $3 5 million or <unk> <unk> per diluted share for the comparable period of 2021.

EBITDA as adjusted for the period was $4 8 million compared to $5 3 million in the prior year period.

During the period lower sales of rapid mill PM violin that negatively impacted EBITDA as adjusted by $8 million as compared to the 2021 period.

I will now provide an overview of our financial results for the first nine months of 2022.

Revenue for the nine months ended September 32022 was $65 9 million compared to $53 1 million for 2021 the.

The increase of $12 8 million in revenue was primarily driven by revenue, resulting from the acquisition of viruses as well as higher revenues from the Companys clinical trial materials business in.

In addition, there was an increase in European Ritalin la demand from our company's new customer in fact, a far.

As well as an increase in revenue from the company's largest commercial customer Teva correlated with pull through in demand, resulting from market share gains against the sole competitor for the rapid and the last of our products.

The increase in revenue was partially offset by a decline in revenue from <unk> commercial sales of <unk> products.

Cost of sales for the nine months ended September 32022 was $49 6 million compared to $39 8 million in 2021.

The cost of sales increase of $9 8 million was primarily due to the acquisition of the San Diego facility and certain 2021 employment incentive tax credits that were not repeated in 2022, resulting in an increase of expenses in 2020 to these.

These increases were partially offset by the reallocation of expenses, reflecting the post acquisition.

Organizational structure.

Selling general and administrative expenses for the nine months ended September 32022 were $15 9 million compared to $13 1 million in 2021.

The increase of $2 8 million was primarily related to increased personnel costs tied to the reallocation of expenses and integration costs associated with <unk> integration.

These increases were offset by lower irises acquisition expenses and lower stock based compensation expense.

Interest expense was $10 4 million and $11 7 million for the first nine months of 'twenty, two and 2021, respectively.

The decrease of $1 3 million was primarily due to the extension of the maturity date of our term loans, which deferred some of the noncash amortization of financing expenses to future periods and increased capitalized interest. These decreases were partially offset by a full period of interest on the debt portion of the Irish This acquisition.

<unk> price and an increase in the variable labor component of interest on our term loans.

For the nine months ended September 32022, societal reported a net loss of $10 $7 million or <unk> 19 per diluted share compared to a net loss of 9 million or <unk> 22 per diluted share for 2021 EBITDA.

EBITDA as adjusted for the nine months was $10 9 million compared to $13 4 million in the prior year period.

During the nine months period, lower sales of wrap them LTM violin that negatively impacted EBITDA as adjusted by approximately $2 8 million as compared to the 2021 period.

Our cash and cash equivalents as of September 32022 were $11 6 million compared to $25 2 million as of the end of the prior fiscal year.

Before turning the call back over to David I'd like to provide an overview of the company's recent real estate transaction during the third quarter. The company signed an agreement to sell approximately 121 acres of land to David Weekley homes.

<unk> recognized homebuilder this land, which is adjacent to our manufacturing facility in Gainesville, Georgia is unused by the company and as such represents a highly valuable and monetize able asset under the terms of the agreement.

Expect to receive approximately $9 1 million in proceeds from the sale to <unk>.

Closing of the transaction is subject to completion of standard due diligence and other customary conditions and it is our expectation that the sale will close in the second half of 2023.

Concludes my financial overview for those interested in reviewing our non-GAAP reconciliations please refer to our 8-K filing or the press release issued today.

Now I'll turn the call back over to David for an update on operations and achievements during the period David.

Thanks, Brian .

As I stated in my opening remarks during the period the company made great progress across multiple areas of the business.

Brian outlined during the quarter, we took the first of several important steps towards strengthening our overall financial position by monetizing our real estate assets with the land sale agreement executed. We are now working diligently to achieve the second part of our three step strategy involving our land and facilities.

Which is the sale and leaseback of our manufacturing site in campus in Gainesville, Georgia, We're making great progress with this effort and expect to have an agreement in the near term.

Once the second phase is complete we believe we will be well positioned to execute a third important transaction that will significantly benefit the companys financial position, which is to refinance our remaining debt at a lower cost of capital and an extended maturity date.

We are currently in discussions with lenders and we will report our progress with this effort as appropriate.

Another important transaction executed during the quarter with societal favorably amended license and supply agreement with low net company for the marketing of <unk> and barrel and products. As a reminder, <unk> owns the NDA and the drug master file for <unk> and <unk>.

<unk>, a long approved calcium channel blocker for the treatment of hypertension for the past several years Teva has and continues to be a strong marketing partner for the dosage forms representing the largest portion of the overall for rapid mill franchise sales. While the net has served as our marketing partner for certain.

<unk> of this drug since 2014.

As the market for rapid mill as mature revenues for the entire franchise were expected to remain flat for the duration of the year. However, as we disclosed earlier this year, while net sales of <unk> experienced an unexpected decline in recent quarters, prompting societal management to engage in.

During discussions with one that in early July we announced that the two companies had agreed to an amendment to our license and supply agreement under terms of the amendment societal will now.

I apologize I lost sound under terms of the amendment societal will now receive improved overall economics, including a 10% increase in the profit share component of revenue from <unk>.

<unk> product sales as well as immediate and scheduled increases in manufacturing prices. Additionally.

Additionally, the amendment awards societal potential new GMP manufacturing agreements targeting injectable products for multiple additional Lynette development projects. We are very pleased with the outcome of these negotiations and believe that the new terms of significantly enhance the value of our relationship with Lynette.

I'll now shift to discuss our other sales and marketing activities during the period in the third quarter. The company saw a significant uptick in new business wins from both new and from existing customers. In fact during the third quarter of 2022, we achieved the highest number of new business wins for any quarter.

And the Companys <unk> history.

These contracts span a wide range of societal services, including clinical trial services analytical methods Tech transfers formulation development cgmp manufacturing and packaging services importantly, these wins reflect the success of our segmented business development strategy, which we announced.

During the first quarter of this year as a reminder, our segmented approach to business development provides customized support to customers in three discrete market segments commercial oral solid dose products legacy profit sharing products, such as <unk> and early stage development clients, whose programs we support both.

In San Diego and in Gainesville, Georgia.

As is evidenced by our new business wins in Q3. This strategy combined with our enhanced branding and visibility is working and in doing so it is facilitating the achievement of other important corporate goals, such as expanding and diversifying our customer base enhancing the customer experience with societal.

And building a meaningful revenue backlog for the company.

Combined these achievements have significantly changed the scale of our company. We now have over 65 customers, which is greater than a three fold increase compared to just a couple of years ago to best support. These customers. We continue to add high quality employees in multiple areas of our business and these new team members.

With them the necessary experiences and expertise to continue to deliver on the promises we make to our clients. Our workplace culture has never been stronger or more capable and importantly, our team takes pride in delivering professional excellence all while never forgetting that our work is critical to helping patients.

Live longer healthier and more fulfilling lives.

In closing the third quarter was a particularly productive time for societal as we continued to successfully execute against our stated goals for the year in particular, improving the company's financial position a number of achievements contributed to this objective during the period as discussed previously.

In recent months a considerable effort has been directed towards the monetization of our land and facilities and during the third quarter. It was gratifying to see the first of three planned transactions materialized.

Once complete the combined proceeds from these transactions will improve our balance sheet and cash flow and support our ongoing efforts to achieve continued growth and a stronger presence in the <unk> space.

Also during the quarter, we successfully amended our license and supply agreement with Lynette.

Amendment not only provides improved economics for societal today, but in the future and it positions us to be awarded several potential manufacturing agreements for certain Lynette development programs.

And finally, perhaps the most significant factor in societal as improving financial status is the exceptional performance of our entire organization and growing our business during the quarter, we signed more new business agreements that at any other time in the company's history as an independent CMO significantly enhancing our customer base our.

And our backlog we are exceedingly pleased with the success of our business development efforts and our segments specific approach to customer engagement and we look forward to reporting continued success.

Progress has been achieved across every area of the business. During the first three quarters I believe this reflects our thoughtful strategy and our collective commitment to execution. It reflects the talent of our people and their dedication to quality on time performance and creating an optimal customer experience. It is our <unk>.

People and their drive to deliver excellence that attracts new customers retain existing customers and consistently positioned societal for continued growth and success.

This concludes my prepared remarks for today, we can now open up the call for questions operator.

Thank you, ladies and gentlemen, if you'd like to ask a question. Please press star one one on your Touchstone telephone again, if you'd like to ask a question. Please press star one one.

Our first question comes from Matthew Hewitt of Craig Hallum. Your line is open.

Good afternoon. Thanks for all the details and then for taking the questions maybe first one for me.

Congratulations on the success that you're having with the sales strategy I'm. Just curious if you could provide an update on your 80 20.

Transfer strategy, and whether or not <unk> had some initial success there.

Yeah, Hi, Matt. Thanks for the question this is David.

I think well first of all.

The cycle time for the 2080 or 80 20.

Sales strategy.

Is going to be a little bit longer, but I will tell you this that.

I've had an opportunity in the past.

Month, five weeks to both be in Asia, as well as Europe .

And the discussions that I was able to have.

Certainly validate to me that there is interest in that program and in that concept.

And I would say to you that I was pretty optimistic when I came out of those meetings with respect to what the future might hold in that regard.

That's great. Thank you one of the questions that I've been getting a lot of here recently as theirs.

Pretty significant shortage of adderall here in the states I'm just curious how you look at that.

Realize that that your.

Your drugs.

Slightly different in that it's not just an easy swap out for a physician, but how should investors be thinking about that current shortage and whether or not that can provide a tailwind for you.

Brian would you like to take that or.

Yes sure.

Matt.

So it's really not our place Matt to comment on drugs not manufactured by us, but my understanding is that the adderall supply disruptions.

I think Teva is probably the most notable are largest in that space.

Obviously, they are a customer of ours as well.

The mill side.

But.

I think the disruptions noted in some of the articles.

What I've seen in some of the things that I've heard or that it is not so dramatic as kind of being made out to be theres typically.

<unk>.

In the market with Adderall Theres been.

Those have happened from time to time over the years.

And there is a possibility that this could result in increased demand for the products that we manufacture, but we're not aware of a direct correlation and changes in our customers' forecasts.

As a result of those claims adderall shortages.

That's really helpful. Thank you maybe one last one here and then I'll hop back in the queue I think last quarter you referenced.

You were getting referred.

Some of your peers or running into capacity issues and I'm. Just curious if that's still the case and what that can mean over the coming quarters and years. Thank you.

Yes. This is David I mean, certainly.

Sure.

Number one I would say, we get referrals from a lot of consultants, who are working with small and midsized companies and so that is something that.

We view those relationships very importantly, and we spend time nurturing those relationships and then our delivery and our track record I mean this year, we will be very near again for the second year in a row during COVID-19.

<unk> hundred percent on time and in full.

Track record and I would submit to you that that is the best referral that we can provide or being provided in terms of working on new business opportunities and we get that feedback often as well as the fact that.

Companies.

That are in the mid size.

Category in smaller really enjoy and prefer working with like sized.

Companies and Thats been a real.

Tailwind for us as well.

Understood. Thank you.

Thank you.

Again, ladies and gentlemen, if you'd like to ask a question. Please press star one on your Touchtone telephone again to ask a question Press Star One line. Our next question comes from the line of Max Smock of William Blair. Your line is open.

Hey, David and Brian Thanks for taking our questions and congrats on a nice quarter.

Maybe starting off here on the sale leaseback transaction I know you said in your prepared remarks, David that you expect it to be done near term, but can you clarify whether that transaction is still on track for the end of the year here and then in terms of refinancing the remaining portion of the day. After you pay that down and using the proceeds from the sale leaseback is there any detail you can provide around.

The timing to making that happen and then.

Finally.

There have been some pretty dramatic changes here in terms of the interest rate environment. So at a high level, how should we be thinking about the potential impact of these recent transactions on interest expense, both reported and cash interest next year. Thank you.

Hey, Matt Thanks for the question.

So I.

I would say that.

Obviously, we're happy to report that we made progress on the sale transaction of the land.

And yes, we continue to remain on track.

For the sale leaseback transaction, so certainly stay tuned for.

An update this quarter on that.

Both of those transactions together will provide almost $50 million of non dilutive capital to the company.

Go to immediately.

Immediately reducing our debt, which.

<unk>.

It'd be a significant improvement to our overall capital structure.

Obviously, the benefits of the sale leaseback.

Being that it will.

Also help hedge and fix our interest rate or interest rate exposure given the current interest rate environment as well as the fact that the proceeds from the potential land sale will go directly to reducing that so we look forward to both of those transactions being completed.

Significantly improving where we're at.

As you can imagine we're also.

Engaged and working.

On a debt refinancing process as well as David mentioned earlier Thats kind of the third prong. So.

We are really taking some tremendous steps forward.

No.

Improving the capital structure.

The company, but for sure the interest rate environment.

Right now is certainly.

A difficult one.

Got it I appreciate that color Ryan.

So when we spoke in September you mentioned, the clinical portfolio I think represents about 30% of the revenue today. It's had some 10% obviously, but wondering if we can get an update on mix during the third quarter here as well as some detail around how you're thinking about revenue growth for both the clinical and commercial buckets here.

What they actually recognized in the quarter as well as how youre thinking about growth for each of those buckets next year and longer term.

Yeah. So.

A couple of things and maybe just.

Start out I mean, we're really proud of our team.

We've added I think it's seven new customers this quarter and almost 20, new customer signed year to date so.

Been a lot of significant progress in movement there.

During the quarter, we also signed over 50, new or expanded scope changes for projects with.

About 20 customers so.

Team is operational and business development wise is doing a fantastic job.

We remain on target to double the number of proposals.

We've written in 2022 compared to 2021, and I think our win rates from a new business perspective is above industry average based on the.

The information that I have.

I think as we think about that mix.

From 70 30.

Is 60 40, the right mix I think it's also.

Important in our strategy that we're adding customers at various different clinical stages, including those in the late phase III as well as commercial tech transfer. So whats important is that we're also diversifying within that 60 or 70% bucket.

With more dependable recurring revenue generating.

Commercial contracts. So that is an important part of our strategy. In addition to the number of development and customers that we have which I think is over 60 now.

So that the.

The company is transitioning.

Very well in terms of that new business generation and progress David I don't know if there's anything you wanted to add there.

Yeah, Hey, Max I mean, the only thing I would add is that.

I mean, just to bolt onto the very last thing Brian was mentioning that we.

We have seen a particularly positive level of success.

Either programs, which are commercialized in other countries, who are wishing to expand into the U S.

Or.

Other reasons that clients have had to come to us for a tech transfer in.

Commercial programs. So we're very pleased by that and quite frankly, very pleased with the oral solid dose Act.

Activity.

As Ben.

Very strong the past couple of quarters.

Got it. Thank you for that and then one last one for me and then I'll leave it there just an update on the.

Clinical pipeline in particular, I know theres been a lot of attention given to the slowdown in biotech come in here. So are you seeing any impact on your smaller customers due to that slowdown and really as you bring on these new opportunities. David you mentioned, you're doing some tech transfers and products had already commercialized, but if you're thinking about.

The late stage products that you're bringing on what level of diligence that you're doing around those drags chances of success as well as balance sheet strength of those sponsors.

At the point right now we are focused on just bringing in as much as possible or have you really been selective about what working choose to pursue here.

Very good question.

<unk>.

We have added I've talked about some of the key people. We've added we've actually created a market intelligence function.

So we've added resource there.

And that resources being mentored by one of our board members, who has extensive experience in that area. So.

We're very serious about being able to do exactly what you just said, which is to really critique and analyze opportunities for their long term growth and we've found some programs where we are.

I would say made decisions about how aggressive we should or should not be to get that first important order.

<unk> on what we believe to be their long term outcomes.

With respect to your first question.

Yes.

I think it's fair to say that.

We have to remain.

Discerning and cautious about the early stage companies and the level of funding that they have so I would say right now we haven't really seen the drop off.

Hear about it a lot more than I have seen it with respect to.

So the work product that were created from a business development perspective is still robust.

Robust and our business development team has done a good job, but certainly and I was a CPA Gi conference last week in Europe .

Certainly the overarching theme is one of.

Folks being a little bit careful with respect to the clinical programs and pipelines.

Yeah, David maybe just sneaking one in there on CPI, we did see some quite a bit of interest around.

High potency is that something that stood out to you as well on the capex. It seems like that in particular is an area that can be.

And a good opportunity for you here.

Yes, definitely an area of focus had a conversation with a large customer today about it and it was the only thing listed as a place that they were really really thinking about what their next plans are with respect to development opportunities. So I agree I think high potency and other specialized space.

Spaces, I mean, certainly.

The extended release.

Its formulation enhancements and improvements is another area when I mentioned are growing.

Level of interest in the oral solid dose.

Our expertise in that area and really extending life.

In the product lifecycle of certain programs has been a place where we've been able to capitalize as well.

Okay. Thank you for that and thank you for the call and congrats again on the quarter.

I appreciate it.

Thank you one moment please.

Our next question comes from the line of Jacob Johnson of Stephens. Your line is open.

Good afternoon. This is Matt on for Jacob.

Just to sort of piggyback off the last question.

On the state of your end markets, we saw a large.

CMO kind of report that they were seeing.

Some customers.

Not necessarily narrow, but kind of prioritize their pipelines based on past decisions and I was wondering if you are seeing the same thing.

I apologize that was very faint.

Do you mind reloading sorry.

Yes.

Can you hear me now.

Yes go for it.

Yes.

Large CMO report last week.

Noted that they were seeing some prioritization in their pipelines from from different customers just based on past decisions.

And I was I was wondering if you are seeing the same thing.

Just on the end market perspective.

Yes, no I appreciate it and sorry, I Couldnt hear you earlier I just couldnt hear you.

Again, I think what we've seen so far is.

Well any observation I would make would be offset by.

Barry.

Heightened sense of intensity with respect to our business development teams efforts so.

But I do absolutely believe that.

There are.

Clinical stage companies and I said this a couple of quarters ago.

They are a clinical stage companies, who would have said, let's go on and put all three of these in the clinic and then will raise money later for advancing the one that wins so to speak and there is more care, they're now that being said I mean this this only well this will also mean that the pro.

Grams that do get funding are going to be the ones that are more likely to succeed. So we should expect.

A lower rate of clinical attrition and so long term.

I don't know that the impact is going to be very.

Heavy on us the other thing to say is that we are a net benefactor of the industries.

Decision around should they invest or not invest in their own infrastructure. So definitely what we see longer term.

And now is that companies are very much <unk>.

Looking to outsource to <unk> their production rather than put in any of their own infrastructure that they might have been willing to.

<unk>.

Dedicate capital towards particularly in early stage. So there we go.

Brian did you want to add something there.

Yes, I would just say that.

Look we're maintaining our guidance for the full year.

And we're actually expecting to have our best quarter of the year next quarter and in fact, that's probably better than any quarter in the prior year as well so.

Or.

We're firing on all cylinders in terms of what we're doing from a new business development perspective.

Great. Thanks for taking my questions and congrats on the new wins.

Thanks.

Thank you I'm showing no further questions at this time I'd like to turn the call back over to David <unk> for any closing remarks.

Thank you many thanks to all of our clients supply chain and other service providers and partners and particularly to our excellent societal team. We look forward to many great achievements in the months ahead. Thank you again for participating today and for your continued support of societal CD emo.

Thank you ladies and gentlemen, this does conclude today's conference. Thank you all for participating you may now disconnect have a great day.

The conference will begin shortly.

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Good day, ladies and gentlemen, and welcome to the societal CMO third quarter 2020 financial results Conference call. At this time, all participants are in a listen only mode.

Later, we'll conduct a question and answer session and instructions will follow at that time as a reminder, this conference call is being recorded.

I would now like to hand, the conference over to Stephanie Diaz of societal <unk> Investor Relations Group. Please go ahead.

Thank you Hello, and thank you for joining us on today's call, we have David <unk>, President and CEO , and Brian Lane, Chief Financial Officer.

After our prepared remarks, we will welcome your questions before.

Before we begin I would like to caution that comments made during this conference call. Today November nine 2022 will contain certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.

Turning the current beliefs of the company, which involve a number of assumptions risks and uncertainties.

Actual results could differ friendly.

And the company undertakes no obligation to revise or update any statements made today.

Currency to review all of the Companys filings with the Securities and Exchange Commission concerning these and other matters.

Our earnings press release, and this call will include discussion of certain non-GAAP information you.

You can find our earnings press release, including relevant non-GAAP reconciliations on our corporate website at societal CMO Dot com.

That I will turn the call over to David Enlo societal President and CEO .

Thank you Stephanie and thank you to everyone participating today via webcast.

The highest number of new business wins for any quarter in our history, both with existing and new clients further transforming our pipeline and enhancing our customer base and finally, we successfully renegotiated the agreement with our marketing partner Lynette, providing the company with improved economics with respect to sale.

<unk> of our legacy <unk> product as well as potential manufacturing projects in the future.

Thank you David Good afternoon, everyone before I begin in addition to the brief financial overview I will provide on the call today additional details on our financial results for the third quarter and nine months ended September 32022 are included in our press release issued prior to this call and in our Form 10-Q.

Which is on file with the SEC.

I'll begin with an overview of our financial results for the third quarter.

Growth in the business.

The increase of $3 4 million was primarily driven by an increase in European Ritalin la demands from the company's new customer infective farm revenue, resulting from the acquisition of viruses as well as higher revenues from the Companys clinical trial materials business.

These increases were partially offset by declining revenues from all of that is commercial sales of our rapid mill pm products compared to the prior year, albeit improved due to better economics from a renegotiated agreement for <unk> and a return of volumes post the rebalancing of inventory within the trade during Q4 2020.

In Q1 of 2022.

Cost of sales for the quarter ended September 32022 was $16 1 million compared to $13 2 million for the comparable period of 2021.

In addition in 2021 the company received certain employment incentive tax credits that were not repeated in 2022, resulting in increased expense in 2022.