Medical World News

[Preciouslife1]

Avid Bioservices: Our Top Pick For 2018

https://seekingalpha.com/article/4159480-avid-bioservices-top-pick-2018

Our top pick for 2018 is Avid Bioservices.

Avid's CDMO business is a gem with a wide moat, high margins, sticky customers, and lots of growth.

The last year has been messy as an activist successfully campaigned to replace the Board and Management.

With a new and improved business strategy, Avid is poised to take off.

We think Avid can become a $1B company vs. a current market cap of only $150M.

Avid Bioservices (CDMO) is our top pick for 2018. We believe it is the most compelling opportunity we see today.

Avid’s shares currently trade on the Nasdaq for roughly $2.50 per share. We think this materially undervalues a scarce and valuable asset: the only pure-play biologics CDMO listed on a major Western stock exchange.

As Avid’s revenues and profits grow, and as investors discover the Avid story, we think Avid has an opportunity to become a $1B company with a share price of $15-20 per share. This represents potentially 6-8x upside over our 2-3 year investment time horizon.

The CDMO Business Is Attractive

A contract development and manufacturing organization (a “CDMO”) is an outsourced drug manufacturer in the pharmaceutical industry.

We think CDMOs are wonderful businesses. It makes little sense for thousands of R&D-focused biotech companies to each manufacture its own drugs, so it is established industry practice for pharmaceutical firms – both large and small – to outsource this production step to third-party specialists. The barriers to entry are meaningful, as FDA certification and a track record of regulatory compliance (neither of which can be had overnight) are required for success.

Drug manufacturing itself is a small part of the cost of bringing a drug to market (the bulk is spent on R&D and the FDA approval process), so drug companies are willing to pay up for high-quality CDMO partners: operating margins for leading CDMO firms can often be 20%+. Finally, because FDA sign-offs are required to shift production from one supplier to another (especially in biologics manufacturing), switching costs are real so customers tend to be sticky.