Avid: Smaller player hesitancy contributes to a lumpy order book

Avid Bioservices attributed a lower order intake during its second quarter FY2023 to cash-strapped biotech but remains positive for the overall CDMO business as new capacity prepares to come online.

For the quarter ending October 31, 2022, contract development and manufacturing organization (CDMO) Avid reported revenues of $34.8 million – an increase of 33% on the same period last year.

The firm also announced the quarter clocked in at $26 million in net new project orders, considerably lower than the $41 million of orders brought in the first three months of fiscal year 2023, something batted off by management as the “lumpiness” of quarterly demand.

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“We’ve talked about this before in terms of sometimes people will sign just before the quarter end, which is always great, and some people will sign just afterwards, which is not so great when it comes to reporting quarterly numbers,” CEO Nick Green told investors.

“We’re very happy with the amount of interest and the demand that’s for — at least for Avid services that we see in the marketplace.”

When pushed to talk about general trends driving this lumpiness, Green spoke about the biotech end of the market.

“We see some of the smaller players who are more cash strap than others maybe doing a little bit more navel-gazing and taking a little longer – I think that’s probably the case. Sometimes it’s always difficult to determine whether that’s a macro impact as we only see a relatively small subset of everybody, but overall, in general, we wouldn’t be raising guidance if we weren’t seeing continued strong demand.”

For the full fiscal year, revenue is now expected to be $150 million, up from $145 million.

“And I would highlight that we saw the same thing in the last quarter,” he said. It was a little lower, but there was no general inference of the strength of the market as we see. So, we remain optimistic as far as the interest in Avid.”

New capacity

The firm reported a net loss of $1.2 million for the quarter and a reduction in margins (gross margins sat at 12% compared to 35% the previous year). These were attributed to increases in costs associated with ongoing facility expansions.

“The primary drivers of these costs were increases in labor, overhead and depreciation, which accounted for incremental decreases in margins,” CFO Dan Hart said on the results call.

“We’ve invested aggressively through the second quarter in getting the folks in place and some other operational cost for the expansions and the standing up of the cell and gene therapy business. Going forward on the cost side, we plan to make some further investment, we’re going to make that investment in line with the anticipated growth.”

The firm began a $15 million expansion of its Myford, California facility in late 2020 with a second extension (costing up to $55 million) beginning in March 2021.

“During the first quarter, much of the downstream equipment was positioned in the facility and validation of this equipment was initiated,” Green said. “During quarter two, we installed the upstream equipment and as we stand today, the facility is mechanically and largely complete and validation is well underway as we remain on schedule for release to operations during quarter one calendar 2023.”