| Small & micro cap project / Activism insight

Avid Bioservices, Inc.: Signs of moat

by | Jan 25, 2020

The company is a dedicated contract development and manufacturing organization (“CDMO”) that provides a comprehensive range of services, from process development to current good manufacturing practices (“CGMP”) commercial manufacturing, focused on biopharmaceutical products derived from mammalian cell culture.

Business transition: In Q4 2018, the company transitioned its business to a dedicated CDMO by ceasing its R&D activities.

Signs of Moat

(1) Huge switching cost: Since the service provided by the CDMO is closely linked with the operations and process of pharma companies, it is not easy to switch to a competing CDMO.

(2) Barriers to entry: Building facilities, and developing the expertise to comply with stringent regulatory audits and validation requirements can take years to construct and properly validate, and are barriers to entry.

(3) Track record: The company has a strong regulatory track record consisting of a 16-year inspection history with no significant impact on its business. In fact, between 2005 and 2017, the company completed six successful pre-approval inspections. In addition, the company has successfully complied with audits from large pharmaceutical companies. This strong track record is difficult for new entrants to achieve.

Other notes: Highlights from the second quarter fiscal 2020

In the latest quarter, the company achieved highest revenue since January 2018 & breakeven income from operations.

“The revenues for this quarter were the highest since Avid transitioned to a pure-play CDMO in January 2018, and we achieved 18% gross margin, which represents a significant increase year-over-year as well as quarter-over-quarter.  Expenses remained in line with expectations and our backlog continues to be strong.  Also important, during the quarter we approached breakeven income from operations.”

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