Avid Bioservices says mammalian expansions and a move into the cell and gene therapy space has put pressure on its margins, which fell 12% in the first quarter of fiscal 2023.

For the first quarter FY2023, Avid reported revenues of $36.7 million, a 19% increase compared to the $30.8 million recorded the previous year. However, despite CEO of Avid, Nick Green stating that this is the contract development manufacturing organization’s (CDMO’s) highest quarterly revenue on record, the firm’s margins fell from $11.3 million to $9.1 million, a drop in gross margins from 37% to 25% year-on-year.

Dan Hart, chief financial officer at Avid, told those on its financial call that “factors impacting the gross margin for the first quarter of fiscal ‘23 were primarily from increases in cost associated with the growth of our business and our facility expansions, including compensation and benefit expenses as well as increases in facility and related expenses partially offset by higher revenues during the period.”

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Ongoing expansions

The CDMO has made a string of investments in order to up its manufacturing capacity, while increasing its overall headcount to service the expansions.

In October 2021, Avid announced plans to move into the cell and gene therapy space through the construction of a 53,000 square-foot viral vector development and GMP manufacturing facility at a cost of between $65 and $75 million in Costa Mesa, California.

In July 2022 the firm said it is looking to fill capacity ahead of the facilities opening next year but that “there were a good number of ongoing conversations with a good number of people; people starting to want to visit the site, now it’s available.”

Additionally, the company has been upping its mammalian capacity. In June this year, Avid announced a $6 million investment to double its mammalian capacity at its main campus in Tuscan, California. And the firm began a $15 million expansion of its Myford, California facility in late 2020 with the CDMO announcing it had started work on a second extension in March 2021, estimated to cost $45 to $55 million.

“With respect to our mammalian cell business facilities, we have come a long way and are fast approaching the finishing line with respect to our ongoing expansions,” said Green.

“The second phase of this project is ongoing, and we remain on track to have Myford South expansion complete by the end of quarter one calendar 2023. The manufacturing suites in Myford South are nearing completion and equipment has already been put in place. In fact, as we speak, much of the downstream equipment has been located in the facility and validation of this equipment is already underway.”

During the call, Hart said the ongoing expansions may result in the margins to “continue to be affected in the coming quarters.” Green echoed Hart’s comment but put forward that the squeeze on margins “is temporary,” and “as we start to fill this capacity, we believe that our margins will be restored and further strengthen the capacity utilization increases.”