Avid Bioservices Inc (CDMO)

[golfho]

Some interesting facts:

Third quarter revenue was ~$13.7M. During that same quarter the backlog from second to third quarter went up from ~$36M to ~43M an increase of ~$7M. Implied is that, Sales (increase in orders) for that quarter was ~$20.7M. IF the sales dept. can maintain that pace we will be able to generate revenue of ~$80M for FY 2020.

Now for some silly math…
What is break even…???
From the 3rd quarter 10-Q covering the first 9 months of FY2019

Contract manufacturing revenue: ~$36.5M
Net loss attrib. to shareholders: ~$8.2M

The projected revenue for FY2019 is in the lower range of $50M - $55M lets use $51M. So projected revenue for 4th quarter must be ~$14.5M (This has nothing to do with “what is break even” Just free associating.) Back to break even. The “Net loss attrib. to shareholders” for the last 2 quarters were ~$2.9M and ~$2.6M. I’ll use $3M for simplicity.

$8.2M + $3M = $11.2M + $51M = ~$62.2M I’ll add some additional costs such as added payroll, construction costs, etc.

So…
I think that we will be “profitable” with revenue of ~$67M…Maybe less.


Quote from the CC

“Our Process Dev. Group is increasingly busy generating over 20% of revenue during Q3.”

About process development:
From the second quarter report:

“As detailed in our first quarter earnings call, our PD function, our process development function, which is responsible for the development of robust compliance and cost-effective processes for our clients and also facilitates the transfer of existing manufacturing processes into our facilities is an important new profit center for Avid.
Literally, every client project that comes into Avid Bioservices, whether it’s starting with a DNA sequence and creating a new production cell line for an emerging biotech company, we’re transferring in a well-established existing manufacturing process for a major biopharmaceutical company, either way these pass-through our process development laboratories. These process development functions, which typically contribute, to my experience, around of third of revenue for biologic CDMOs are vital for securing a pipeline of manufacturing opportunities.”

From the third quarter report:

“We see positive trends fueling near-term revenue growth. Our Process Dev. Group is increasingly busy generating over 20% of revenue during Q3. As every project must pass through some phase process development, we believe this important business unit will ultimately account for up to 1/3 of our revenue.”


My understanding of the above is that we have potiential revenue streams from several different sources:

1- Start-ups that are trying to develop a new biologic
2- Generic biologic companies that are trying to develop biologics that are coming off patent protection.
3- Established biologic companies that are trying to develop a second source for their commercial product.


About the new lab expansion Please NOTE djohn:

Second quarter report:

“We will take occupancy of the new upstream suite in the first quarter of calendar 2019, and it will approximately triple Avid cell culture process development capabilities, thus, significantly enhancing revenue potential and the ability to expand our client base and manufacturing pipeline. It will also facilitate strengthening of our cell line development service offering.”



Third quarter report:

“While we’re previously expected to take occupancy of the new upstream suite in Q1/Cal2019, our permitting delay will push this date back several months.”

This implies to me that the sleuthing performed by djohn WRT the construction at the Myford facility is most likely impacting the “occupancy” of the new lab. It is not clear whether the new upstream suite was completed or is still in process and is waiting for work to be completed by the landlord. We don’t have any info on this from IR but if one tried to parse Stephine’s statements and the permits pulled for the facility I can reasonably conclude that the landlord is making the necessary improvements to the building before CDMO occupies the space. Also implied is that once CDMO “occupies” the space a new lab must be completed or built and certified. I’m thinking that revenue from this new lab may not be realized until end of FY 2020 or FY 2021.

Thanks again djohn for your effort. I hope to meet you one day.

Opening and final remarks from Roger’s third quarter CC:

“All of this positions us well for growth and achieving profitability, which we believe is now within reach in the coming FY [FY2020: fye 4-30-20].”

“To summarize, in the past 12mos, we have significantly diversified our client base, thus reducing risk and building a pipeline of future mfg. opportunities. We’ve built commercial & operational infrastructure to support growth. We have right-sized the organization, significantly cut costs, and increased capacity utilization resulting improved margins. As a result, we are firmly on track towards profitability and positive EBITDA”

On a personal note…

I have a bad chest cold and it’s raining, so, I decided to post. I try to distract myself from this little nightmare that is PPHM/CDMO. I read this board once or twice a week. At nearly 72 I try to focus on the positive…Play golf, eat well, stay healthy and not think about the tragedy that is PPHM/CDMO. It was never my plan to be at this stage in my life and be so bitter.

FWIW I see a light at the end of the tunnel…

I hope it’s not another on-coming train.

Regards
golfho