Avid Bioservices Inc (CDMO)

[golfho]

I got bored curled up under my bed…

So, I decided to review the last few years’ worth of 10K’s & 10Q’s.
And contemplate the future…

We are all hoping that management will conclude a collaboration/partnership sometime before the drop dead date of 3-24-17. That prospect looks dimer and dimer as days go by. So, at this point a RS is looking more and more likely. As CP pointed out, the RS will initially have zero impact on the market cap of the company other than a phycological impact. But let’s face it folks at a market cap of ~$74M how much lower can it go…??? By all reasonable assessments, the company should be trading around or above $1.00 just on AVID alone. If I had additional money I would be buying at these levels hand over fist…But I don’t…!!!

So, what do we have?

A prolonged period of time with no information; frustration and bashing on this board building to unseen before levels.

As ku and many others have stated repeatedly…The Boot that is stepping on our throat will not be lifted until there is a money producing deal…END OF STORY. DEAL WITH IT.

Management has three stated goal post SUNRISE failure:

1 – Overall profitability via AVID by June-July of 2018
2 – Partner the liquid biopsy assay technology and initiate partnering discussions for the program in 2017

“Peregrine and Avid Bioservices teams have the existing infrastructure, staff and expertise to develop, optimize and validate a functional assay capable of detecting PS-positive exosomes from a blood sample. Given the company's extensive experience in developing assays of this type, Peregrine does not anticipate the need to add personnel or any specialized equipment for this project. The company intends to establish clinical proof-of-concept for the test and expects to initiate partnering discussions for the program in 2017.”

Those discussions should be starting now. How long do you think that will take?

3 – Conclude a deal to go forward with some late stage clinical trials for Bavituximab with biomarker data to guide it.

The last two items on the list are indeterminant. NO ONE can predict when those will happen. That leaves only number one that can be evaluated.

PPHM’s goal to be overall profitable via AVID by June-July of 2018.

In my last post, I started that evaluation. A quick review:

“Pure speculation…
Assume that…per management guidance, each facility can produce about $40M each. Implied is that at full capacity both facilities can produce ~$80M annually. Maximum full capacity output for the next six months is ~$40M. That’s ~$20M per quarter…
So…Something between the current rate and the maximum capacity is a potential target. That’s…
Between ~$14.49M and ~$20M…Quarterly
We will know definitively around the second week of March.”

What do we know?

1 - Management projects that AVID III can produce ~$30M annually at max. capacity. Management states that AVID I & II can produce a combined ~$80M annually. Implied is that at ~$110M gross or ~$50M to ~55M net the company would be cash positive or at the minimum cash even.

2 – Now back to those K’s & Q’s…After reviewing the financial records over the last 2.5+ years, I can state the following:

The cost of AVID II was ~$16.4M to ~$18.4M

Property and equipment acquisitions:
7/15 10K $9.047M
7/16 10K $9.324M

Prior to and post those 10K’s the average “Property and equipment acquisitions” the 10Q’s and 10K’s reported is less than $1M annually.

Implied is that AVID II cost ~$16.4M to ~$18.4M

AVID III will be a smaller facility than AVID II (25K sq. ft. vs. 40K sq. ft.). It’s reasonable to assume that there will be a commensurate decrease in cost. It’s not a given that the cost differential will be at the same ratio (25/40) so I’ll arbitrarily use 3/4 ($12.3M to $13.8M).

Now from the latest 10Q (12/16)

Contract manufacturing revenue for the 6 months ending 10/16 $28,979,000
Cost of contract manufacturing for the 6 months ending 10/16 $18,503,000
Net loss attributable to common Stockholders for the 6 months ending 10/16
($17,590,000)

From the above we can conclude the following:

If things remain static, the loss for the full year will be about $35M.

Things will not remain static…AVID III build out will be expensed ($12.3M to $13.8M) over the construction period (22 months for AVID II build-out)

From the PR:

“While this may delay the new facility launch until later in CY2017, we currently have adequate existing capacity to continue meeting the needs of our current clients while also bringing in new customers”

To me this is somewhat vague; does launch imply start of construction or constructions complete and the start of FDA inspection & test runs?

If it’s the latter, then they have about 11 months to complete construction. Is that doable? Well possibly…There was an uptick in the last 3 months of Property and equipment acquisitions numbers to $.828M from the previous 3-month period numbers of $.275M. That could represent deposits for those long lead items like the reactors etc.

In addition, the cost of construction would have to be expensed over that same 11-month period. That’s ~ $3M to ~ $3.45M per quarter going forward. Add that to the current average burn rate per quarter of ~8.8M and we get ~ $11.8M to $12.25M per quarter going forward. That’s ~ $47.2M to ~ $49M for this calendar year.

As stated earlier:

Contract manufacturing revenue for the 6 months ending 10/16 $28,979,000
Cost of contract manufacturing for the 6 months ending 10/16 $18,503,000

That means that the margin for the last 6 months was 36.16%, somewhat lower that the historic average of ~ 41% to 48% over the last four years. I assume that that might be a result of having to run several more validation runs. Going forward I will assume that the margins will return to their previous levels.

So, if management’s guidance for projected revenue prove to be accurate then we should see the upcoming quarterly report reflect that. To wit, an increase in “backlog of future business” and an increase in this year’s revenue guidance from $50M-$55M to...

~ $80M gross revenue X 43% (Average margin over the last 4 years) equals ~ $ 34.4M. That leaves a shortfall of ~ $12.8M to ~ $14.6M (~ $47.2M to ~ $49M minus ~ $ 34.4M ) that needs to be addressed for this calendar year.

So, you are asking…What is all this gibberish about…???

Simple…

The company will need to spend at least ~ $47.2M to ~ $49M over the next year. In order to satisfy the quarterly “Going Concern” requirement, I calculate that the company must demonstrate the ability to maintain a balance of ~ $55M (A combination of revenue and cash on hand) for the remainder of the CY 2017 and must be demonstrated quarterly.

In March we will get the third quarter report. Of particular importance to me will be the reported revenue, the backlog of orders, property and equipment acquisitions and cash on hand. My gut feeling is that they went to the equity markets this quarter ending this month and may have to again next quarter.

OK…I’m done.

With regards to any partnering…

Maybe mid-year 2017…Maybe…
I’m going to play golf…

We’ll talk again in March

Regards
golfho