20-F: Sofgen Pharma Faces Delisting, Restructures Debt Amid Losses

Sofgen Pharma, S.A. reports significant financial losses for 2024, Nasdaq delisting, and material weaknesses in internal controls, while completing a major debt restructuring and capital raise post-year-end.

Summary

• Net Revenues decreased by $49.9 million, or 11.8%, from $423.7 million in 2023 to $373.7 million in 2024, primarily due to lower volumes and delayed commercialization impacted by liquidity constraints and operational disruptions.
• The company reported a net loss of $(68.3) million for the year ended December 31, 2024, a significant decline from a $40.3 million profit in 2023.
• Adjusted EBITDA decreased by $56.0 million, or 96.7%, to $1.9 million in 2024, reflecting a severe deterioration in operational profitability.
• As of December 31, 2024, the company was in breach of multiple financial covenants, including a Consolidated Total Indebtedness to Consolidated EBITDA ratio of 27.73x (compared to a maximum permitted ratio of 3.50x) and a Consolidated EBITDA to Consolidated Interest Expense ratio of 0.32x (compared to a minimum required ratio of 3.00x).
• The independent registered public accounting firm included an explanatory paragraph in its report, raising substantial doubt about the company's ability to continue as a going concern.
• The company's Ordinary Shares were delisted from Nasdaq effective February 4, 2025, and removed from listing under Section 12(b) of the Exchange Act on July 21, 2025, now trading on the OTC Expert Market under the symbol PROCF on an unsolicited only basis.
• Material weaknesses in internal control over financial reporting were identified and remain unremedied as of December 31, 2024, related to management override of controls, manual consolidation processes, information technology controls, technical accounting resources, and manual journal entry review.
• Post-reporting period, in April 2025, the company completed a comprehensive debt restructuring for approximately $187.9 million in liabilities, extending maturities and revising payment terms, including a temporary 0% interest rate until December 31, 2026.
• A private capital raise of $90 million was completed in April 2025, involving the issuance of 1,425,629,653 Ordinary Shares to new investors and the conversion of $41.1 million in Secured Convertible Notes into 633,613,175 Ordinary Shares and $10 million in 2025 Warrants.
• The company sold substantially all assets of its West Palm Beach, Florida facility on December 12, 2025, for approximately $4.5 million.
• New product sales for 2024 totaled $93.9 million, accounting for 24.7% of net revenue, a decrease from $117.1 million (27.6% of net revenue) in 2023.

Sentiment

Score: 2

Explanation: StockSavvy.ai views this as a highly negative development due to significant financial losses, severe covenant breaches, Nasdaq delisting, and unremedied material weaknesses in internal controls, which collectively raise substantial doubt about the company's going concern ability. While a capital raise and debt restructuring have occurred post-period, the underlying operational challenges and financial instability remain critical concerns.

Positives

• Successfully completed a comprehensive debt restructuring in April 2025, extending maturities and revising payment terms for approximately $187.9 million in liabilities, providing improved cash flow in the short and medium term.
• Completed a private capital raise of $90 million in April 2025, providing additional liquidity and flexibility to support near-term operations.
• Converted $41.1 million in Secured Convertible Notes into equity and warrants, strengthening the capital structure.
• Implemented significant governance and control reforms during 2024 and 2025, including leadership changes, reconstitution of the Audit Committee with new independent members, and stricter policies for related-party transactions.
• Ongoing remediation efforts for identified material weaknesses in internal control over financial reporting, with modifications to IT general controls and refinement of manual journal entry processes.
• The Diabetrics segment showed positive performance, with revenue increasing by $5.1 million (23.0%) to $27.3 million in 2024, and gross profit increasing by $7.0 million (170.9%) to $11.1 million.
• The Procaps Colombia segment's gross profit increased by $4.9 million (6.9%) to $75.8 million in 2024, driven by an improvement in the cost of products as a percentage of net revenues and decreased promotional units.
• The NextGel segment's Contribution Margin increased by $2.5 million (5.6%) to $47.9 million in 2024, attributed to cost/expense control initiatives and reclassification of certain operating expenses.
• Received FDA approval to manufacture and sell Dronabinol in the United States, and FDA inspection of manufacturing facilities in April 2023 resulted in a favorable outcome with zero deviations.
• Identified opportunities for mitigating greenhouse gas emissions and implemented a project focused on refrigeration equipment in 2024, achieving reductions compared to 2023.
• Maintains strong R&D capabilities, developing an average of over 150 new products per year over the last three years, and holds 44 granted patents and 5210 trademarks.

Negatives

• Reported a net loss of $(68.3) million for the year ended December 31, 2024, a significant reversal from a $40.3 million profit in 2023.
• Adjusted EBITDA decreased by 96.7% to $1.9 million in 2024, indicating a severe decline in operational profitability.
• Net Revenues decreased by 11.8% to $373.7 million in 2024, primarily due to lower volumes and delayed commercialization caused by liquidity constraints and operational disruptions.
• Gross Profit decreased by 19.5% to $191.4 million in 2024, influenced by lower net revenues and reduced absorption of fixed manufacturing costs.
• Administrative expenses increased significantly by 25.1% to $123.0 million in 2024, largely due to higher legal and professional fees associated with the internal investigation.
• The company was in breach of multiple financial covenants as of December 31, 2024, including a Consolidated Total Indebtedness to Consolidated EBITDA ratio of 27.73x (vs. 3.50x maximum) and a Consolidated EBITDA to Consolidated Interest Expense ratio of 0.32x (vs. 3.00x minimum).
• The independent registered public accounting firm included an explanatory paragraph in its report, raising substantial doubt about the company's ability to continue as a going concern.
• The company's Ordinary Shares were delisted from Nasdaq effective February 4, 2025, and removed from listing on July 21, 2025, resulting in trading on the less liquid OTC Expert Market.
• Identified material weaknesses in internal control over financial reporting remain unremedied as of December 31, 2024, impacting investor confidence and financial reporting reliability.
• The CAN segment's revenue decreased by 30.7% to $35.7 million in 2024, and the CASAND segment's revenue decreased by 38.6% to $48.6 million, both due to planned reductions in sales to lower distributor stock levels.
• The CASAND segment's Contribution Margin became negative $(5.0) million in 2024, a decrease of 111.7%, primarily due to product returns and commercial initiatives.
• The operating license for the Softcaps manufacturing facility warehouse and quality control laboratory in Brazil was denied by CETESB, posing a risk of operational suspension if the underlying legal proceeding is resolved negatively.
• The company incurred significant impairment losses in 2023, including $5.791 million for goodwill, $5.478 million for property, plant and equipment, $0.374 million for right-of-use assets, and $0.533 million for intangible assets.

Risks

• The development of new pharmaceutical products is a complex, risky, and lengthy process, which may be delayed due to various factors, resulting in increased costs or the emergence of competing products.
• Strict controls on the commercialization processes for pharmaceutical products vary by country and region, and any delays in regulatory reviews or approvals could delay the ability to market products.
• Future results of operations are subject to fluctuations in the costs, availability, and suitability of raw materials and components, including active pharmaceutical ingredients and gelatin, exacerbated by global supply chain crises.
• A disruption at any of the main manufacturing facilities (Colombia, Brazil, El Salvador, United States) due to fire, natural disaster, power loss, vandalism, climate change, war, terrorism, insufficient quality, cyber-attacks, or pandemic could materially and adversely affect the business.
• The delisting of Ordinary Shares from Nasdaq may continue to have a material adverse effect on trading, price, and liquidity, and there is no assurance of relisting or continued listing.
• The company has a significant amount of outstanding indebtedness ($268.0 million as of December 31, 2024) and was not in compliance with several financial covenant ratios, increasing risk to the business and ability to meet obligations.
• The independent registered public accounting firm has included an explanatory paragraph relating to the company's ability to continue as a going concern, indicating substantial doubt.
• Material weaknesses in internal control over financial reporting have been identified and remain unremedied, potentially affecting the accuracy and timeliness of financial reporting and investor confidence.
• As an international company with operations primarily in Latin America, the company is subject to market risks of the countries in which it operates, including foreign exchange rate fluctuations, currency controls, trade barriers, and political/economic instability.
• Failure to enhance existing products and services or introduce new technology in a timely manner could render offerings uncompetitive, leading to reduced sales and operating results.
• Demand for OTC products may be impacted by changes in consumer preferences, and an inability to adapt could lead to market share loss and negative net sales.
• The business depends upon certain customers for a significant portion of sales (top five economic groups comprised approximately 28% of net sales in 2024), and disruption of these relationships could have a material adverse effect.
• Loss of, or failure to attract and retain, executive officers and other key personnel could adversely affect operations.
• Inability to identify acquisition opportunities and successfully execute and close acquisitions could limit potential for growth.
• Failure to realize the benefits of business acquisitions and divestitures, including integration challenges or difficulties in executing dispositions, could adversely affect the business.
• Demand for iCDMO services depends on customers' research and development and the clinical and market success of their products; reduced customer spending or success could materially adversely affect the business.
• Participation in a highly competitive market, with increased competition potentially adversely affecting business, financial condition, and results of operations.
• Changes in market access or healthcare reimbursement for, or public sentiment towards, products in Latin America, the United States, and other operating countries could adversely affect financial condition.
• The illegal trade in pharmaceutical products, including counterfeiting, theft, and illegal diversion, could lead to public loss of confidence and materially adversely affect reputation and financial performance.
• Dependence on patents, copyrights, trademarks, know-how, trade secrets, and other intellectual property protections, which may not be adequate or may be challenged.
• Products and services, or customers' products, may infringe on the intellectual property rights of third parties, leading to costly litigation, damages, or cessation of operations.
• A significant portion of medication on the market is subject to price control regulations, which may limit margins and the ability to pass on cost increases to customers.
• Potential liability if a consumer has an adverse health reaction to a product sold or manufactured, leading to product liability risks, lawsuits, recalls, fines, and reputational damage.
• Failure to comply with existing and future regulatory requirements (e.g., INVIMA, FDA, ANVISA, environmental, health, safety, zoning) could adversely affect the business or result in claims.
• Global operations are subject to economic, political, and regulatory risks, including changing regulatory standards or interpretations.
• Legislative or regulatory initiatives, such as the 2022 and 2025 Colombian Tax Reforms, OECD/G20 BEPS Project, and ATAD III, could adversely affect tax positions and results of operations.
• Labor and employment laws and regulations, including new union labor agreements and government regulations (e.g., reduction in working hours in Colombia), could increase operational costs.
• Governmental export and import controls could impair the ability to compete in international markets and subject the company to liability for non-compliance.
• Proceeds from the sale of controlled substances (e.g., Dronabinol) in licensed jurisdictions could be considered criminal property in other jurisdictions where such products are not licensed.
• Failure to comply with the U.S. Foreign Corrupt Practices Act (FCPA) and similar anti-bribery laws could result in penalties and adverse consequences.
• Management has limited experience in operating a public company, potentially leading to increased time devoted to regulatory oversight and less to business growth.
• The trading price of the company's securities has been and may continue to be volatile, especially after delisting to the OTC Expert Market, which could result in substantial losses to investors.
• Penny stock rules may make buying or selling securities difficult, limiting liquidity.
• Future deregistration of securities under the Exchange Act could result in less disclosure and negatively affect liquidity and trading prices.
• Difficulties for investors to obtain or enforce judgments or bring original actions against the company or its directors in the United States due to Luxembourg incorporation and non-U.S. asset location.
• Luxembourg and European insolvency and bankruptcy laws are substantially different from U.S. laws and may offer shareholders less protection.
• The rights of shareholders may differ from those in a United States corporation, potentially impacting trading and equity financings.
• Non-Luxembourg resident holders of Ordinary Shares could be subject to adverse Grand Duchy of Luxembourg income tax consequences.
• If a United States person is treated as owning at least 10% of shares, such person may be subject to adverse U.S. federal income tax consequences under Controlled Foreign Corporation rules.
• The company may be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, leading to adverse tax consequences for U.S. holders.

Future Outlook

Management believes that the recent capital raise and comprehensive debt restructuring, combined with operational and financial initiatives focused on tighter cost controls, improved gross margin, and working capital discipline, will provide sufficient liquidity and flexibility for near-term operations and debt service. The company expects to meet agreed-upon quarterly EBITDA levels for fiscal year 2026, reflecting stable operational performance and continued cost discipline. Future revenue growth initiatives include diversifying the customer base for the NextGel business line and recovering sales lost in 2024 due to liquidity constraints. Gross margin improvement measures involve negotiations with suppliers, realizing efficiencies from cost-saving initiatives, price adjustments, and optimizing product mix. Additional cost reduction and revenue increase measures include reducing discretionary spending on marketing and capital expenditures, executing a strategic divestment plan for non-core assets, and further reducing headcount. The company anticipates that the application of new IFRS standards may impact future consolidated financial statements.

Management Comments

• Management believes that this transaction [capital injection], together with the Company’s operational and financial initiatives implemented during 2025—focused on tighter cost controls, improved gross margin, working capital discipline, and operating model simplification—provides additional liquidity and flexibility to support near-term operations and liquidity management.
• Management believes that the Group will be able to successfully implement these plans and has therefore prepared the consolidated financial statements on a going concern basis.
• Management has identified specific opportunities for revenue growth and gross margin improvement.
• Management believes that the assumptions applied [for goodwill impairment] are reasonable and consistent with IAS 36 requirements.
• Management believes that our financial resources and expected future cash flows from operating activities shall be sufficient to satisfy our contractual obligations and commitments.
• Management believes that our employee relations are satisfactory.

Industry Context

StockSavvy.ai notes that Sofgen Pharma operates in a highly competitive global pharmaceutical and biotechnology industry, with a strategic focus on advanced oral delivery technologies, particularly Softgel capsules, where it holds a leading position in Latin America and is a top five global manufacturer. The company's emphasis on proprietary delivery systems for high-growth and premium pharmaceutical products aims to mitigate the intense pricing pressures prevalent in the generic drug market. The industry's rapid technological evolution and sophisticated customer demands necessitate continuous innovation and R&D, which Sofgen addresses through a robust pipeline of over 150 new products annually. The Contract Development and Manufacturing Organization (CDMO) market, a key segment for Sofgen's NextGel business, is projected for significant growth, with substantial outsourcing opportunities still available. Sofgen's regional focus in Latin America aligns with demographic trends of an aging population and increasing healthcare expenditures in emerging economies. However, the company's recent financial distress, including substantial losses, covenant breaches, and Nasdaq delisting, highlights the inherent financial vulnerabilities and operational risks that can affect even established players in the capital-intensive pharmaceutical sector, particularly those navigating volatile economic and regulatory environments in emerging markets.

Comparison to Industry Standards

• Sofgen Pharma is recognized as the number one Softgel manufacturer in Latin America and ranks among the top three globally in terms of Softgel production capacity and market share, according to a 2023 independent third-party industry analysis report, indicating a strong competitive standing in its specialized niche.
• The company's iCDMO agreements with top-tier customers typically span five to ten years, which is consistent with industry standards for long-term strategic partnerships in contract development and manufacturing.
• Sofgen's manufacturing facilities hold certifications from multiple stringent regulatory bodies, including the FDA, Health Canada, MHRA, TGA, Invima, Digemid, Cofepris, and ISO, demonstrating adherence to international quality and safety standards comparable to leading global pharmaceutical manufacturers.
• The company's R&D capabilities, evidenced by the development of an average of over 150 new products per year over the last three years, suggest a robust innovation pipeline, a critical factor for competitiveness in the pharmaceutical industry.
• In the Diabetrics segment, Sofgen competes with major global players such as F. Hoffmann-La Roche AG, Abbott Laboratories, and Johnson & Johnson in blood glucose monitors, and Becton, Dickinson and Company and Novo Nordisk A/S in insulin delivery systems, indicating a challenging competitive landscape against well-established brands.
• The reported Consolidated Total Indebtedness to Consolidated EBITDA ratio of 27.73x as of December 31, 2024, significantly exceeds the maximum permitted ratio of 3.50x under its debt covenants, indicating a severe deviation from typical industry benchmarks for leverage and financial health.
• The Consolidated EBITDA to Consolidated Interest Expense ratio of 0.32x is substantially below the minimum required ratio of 3.00x, signaling a critical inability to cover interest expenses from operational earnings, which is far below acceptable industry standards for debt service capacity.

Management Changes

Corporate Governance

Legal Proceedings

• Involved in investigations, claims, lawsuits, and other proceedings arising in the ordinary course of business, with total contingencies of $0.32 million as of December 31, 2024 ($0.22 million related to labor claims and $0.10 million related to administrative and civil claims).
• Potential future administrative proceedings by Colombia's Ministry of Finances Pension and Parafiscal Management Unit (UGPP) for alleged failures to pay social security benefits due to changes in interpretation of applicable Colombian labor and tax laws.
• The operating license for the Softcaps manufacturing facility warehouse and quality control laboratory in Brazil was denied by CETESB on May 9, 2013, due to a legal proceeding against the industrial park developer. Operations are currently permitted, but a negative resolution could force suspension of operations.
• The General Tax Directorate of El Salvador (DGII) determined that Procaps SA de CV failed to declare taxable and presumed income and incurred non-intentional evasion for incorrect VAT filings in prior years, with proposed tax charges and sanctions totaling $1.435 million for 2018 and 2019. Additionally, in 2024, the DGII notified of proposed tax charges and sanctions of $2.783 million for 2021 related to unreported taxable income and non-allowable costs/expenses, though external legal counsel indicates this claim is not probable of success.
• HSMY Co Ltda. has filed a claim against Rymco S.A. for $0.454 million related to unpaid invoices, which external legal counsel assesses as not probable of success.

Related Party Transactions

• Purchased $22.3 million in goods and services from related parties in 2024 (vs. $19.1 million in 2023 and $15.9 million in 2022), primarily refined fish oil, gelatin, and other raw materials.
• Sold $2.4 million in goods to related parties in 2024 (vs. $4.5 million in 2023 and $8.0 million in 2022), primarily raw materials.
• Sold $0.531 million in services to related parties in 2024 (vs. $0.478 million in 2023 and $1.034 million in 2022), primarily technical advisory services.
• Maintained $14.6 million in accounts receivables owed by related parties in 2024 (vs. $13.5 million in 2023 and $14.0 million in 2022), primarily for back-office services, leases, technical advisory, and sale of finished products/raw materials.
• Maintained $7.1 million in accounts payable to related parties in 2024 (vs. $8.1 million in 2023 and $6.1 million in 2022), primarily for purchase of raw materials, technical advisory, and leases.
• Received a $5.0 million loan from related parties in 2024, which was subsequently capitalized into the share premium account.
• Outstanding liabilities of $13.090 million related to loans with Herfroze Investments Ltd. and Bindermoor Overseas S.A. (entities controlled by the Minski Family) as of December 31, 2023, were irrevocably extinguished and released under the Master Termination and Release Agreement in 2024, with derecognition recognized in equity.
• Procaps S.A. made donations to Fundacion Procaps (a Minski Family controlled non-profit entity) totaling $0.9 million in 2024 (vs. $1.14 million in 2023 and $0.8 million in 2022).
• Olvi Investment Limited (an affiliate of the Minski Trusts) agreed to transfer and contribute a $5.0 million junior unsecured subordinated promissory note to the Company as a contribution to shareholder equity, extinguishing the Company's obligation.
• Originates Inc. (an affiliate of the Minski Trusts) agreed to reduce outstanding accounts payable owed by Procaps S.A. by $2.2 million, treating it as fully cancelled.

Stakeholder Impact

• Shareholders face significant dilution from the recent capital raise, loss of liquidity and market value due to Nasdaq delisting and trading on the OTC Expert Market, and uncertainty regarding future share price volatility. Changes in voting power and board representation have occurred due to new shareholder agreements.
• Employees may experience increased benefits costs due to new union labor agreements and government regulations, and potential impacts from headcount reductions as part of cost-saving measures. The company emphasizes promoting a healthy and safe work environment and fostering professional growth.
• Customers face risks of supply chain disruptions affecting product availability and potential changes in product pricing due to inflation and price control regulations. The demand for iCDMO services remains dependent on customer R&D success.
• Suppliers are impacted by global supply chain crises affecting raw material availability and costs, and changes in payment terms due to reverse factoring arrangements.
• Creditors face significant risk due to the company's covenant breaches and going concern uncertainty. The recent debt restructuring has extended maturities and revised terms, providing some relief but also introducing new covenants.
• Regulatory bodies maintain ongoing scrutiny due to internal investigation findings and material weaknesses in internal controls, requiring continuous compliance with various national and international regulations.

Next Steps

• Continue implementing initiatives to effectively implement internal controls over financial reporting and further document policies, procedures, and internal controls.
• Continue to enhance the capabilities of the finance team through targeted IFRS training and external advisors.
• Refine criteria for identifying high-risk manual journal entries and continue the rollout of standardized review and approval processes.
• Continue to validate and test the design and operating effectiveness of controls over a sustained period of financial reporting to remediate material weaknesses.
• Meet agreed-upon quarterly EBITDA levels for fiscal year 2026 as part of debt covenants.
• Pursue an exit transaction upon the earlier of the fifth anniversary of the 2025 Closing and the company achieving certain annual consolidated EBITDA targets (as per Shareholder Nomination and Voting Agreement).
• File a registration statement under the Securities Act to permit public resale of Ordinary Shares subject to registration, once the annual report for fiscal year ended December 31, 2025, is filed and all required reports are current.
• Continue to monitor developments and implementation of new U.S. restrictions or prohibitions relating to transactions with Russia.
• Complete the technical study related to transfer pricing for transactions carried out with related parties during 2024.
• Outline a Business Continuity Plan (BCP).

Key Dates

Recommendation

The company is in a critical financial state, marked by a substantial net loss and near-zero Adjusted EBITDA in 2024, severe breaches of debt covenants, and an auditor's going concern opinion. The delisting from Nasdaq to the illiquid OTC Expert Market significantly reduces investor access and market value. While a recent debt restructuring and capital raise provide temporary relief, they do not fundamentally resolve the underlying operational challenges and financial instability. Unremedied material weaknesses in internal controls further compound governance and reporting risks. Given the high level of uncertainty, operational distress, and substantial shareholder dilution, a seasoned investor would strongly recommend selling to avoid further capital erosion.

Keywords

Pharmaceuticals, Healthcare, Softgel, CDMO, Rx products, OTC products, Diabetrics, Luxembourg, Colombia, Brazil, El Salvador, SEC filing, Annual Report, Financial results, Debt restructuring, Capital raise, Nasdaq delisting, OTC Expert Market, Internal controls, Going concern, Risk management, Corporate governance, Supply chain, Regulatory compliance, Intellectual property, Latin America, Emerging markets, ESG