Avid Bioservices (CDMO), a leading contract development and manufacturing organization (CDMO) focusing on biopharmaceuticals, is poised for substantial growth. Bolstered by market trends and legislative developments, the company provides a broad array of services, including clinical and commercial manufacturing and regulatory support. Recent shifts in the marketplace, such as Novo Holdings’ (NVO) acquisition of Catalent, have created promising opportunities for expanding Avid’s customer base.
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Furthermore, the potential passage of the BIOSECURE Act, which prevents U.S. federal funds from supporting certain foreign biotech companies, positions Avid attractively to gain business from other CDMOs. Additionally, growth in late-stage pipeline projects promises significant recurring revenue streams in the future.
The company agreed to be acquired by GHO and Ampersand in an all-cash transaction valued at approximately $1.1 billion. However, Avid shareholders have balked at the price, and the deal is far from certain. Given Avid’s strong regulatory track record and impressive growth trajectory, investors may want to keep tabs on how this plays out.
Avid Acquisition in Question
Avid Bioservices is a prominent contract development and manufacturing organization for the biotechnology and biopharmaceutical industries. Funds managed by GHO Capital Partners LLP and Ampersand Capital Partners are set to purchase the company for approximately $1.1 billion. The deal, which values Avid at $12.50 per share, represents a 13.8% premium to Avid’s closing share price on November 6, 2024, and a 21.9% premium over the Company’s 20-day volume-weighted average share price for the corresponding period.
However, the acquisition has faced pushback from specific stakeholders. Notably, Cannell Capital has announced its intention to vote against the proposal, claiming the timing and the bid are inadequate. Avid’s investors, Punch & Associates, and Brock Pond Capital Partners have also voiced opposition to the deal and plan to vote against it. They argue that the acquisition significantly undervalues the company and is inopportunely timed to exploit through valuations and a likely upturn in the business fundamentals.
Analysis of Avid’s Recent Financial Results
In the first quarter of Fiscal 2025, Avid Bioservices reported strong revenues and new business signings. Key contracts included several new customers, early-phase and late-stage programs, and two PPQ campaigns, contributing to growing the company’s backlog. The company’s systemic investments in infrastructure and capacity fortified its position for both large pharma and smaller biotech companies and increased its potential for future opportunities.
In the first quarter, Avid’s revenue was $40.2 million, a 6% increase compared to the $37.7 million of the same period in the previous fiscal year. As of the last report (July 31, 2024), the company’s backlog was valued at $219 million, up 16% from $189 million the previous year.
The reported cash and cash equivalents were $33.4 million, down from $38.1 million. Revenue guidance for Fiscal 2025 is projected to be between $160 million and $168 million.
Is CDMO a Buy?
The stock has been volatile (beta of 2.49), climbing 132% in the past year. It currently trades at the high end of its 52-week price range of $4.07 – $12.48 and shows ongoing positive price momentum as it trades above all major moving averages.
Analysts following the company have taken a cautiously optimistic view of CDMO stock. For instance, Craig-Hallum analyst Matt Hewitt recently downgraded Avid to Hold from Buy with a price target of $12.50 after the company announced it was in the last stages of being acquired by GHO Capital and Ampersand Capital. The acquisition aligns with expectations, though earlier and at a lower price than Hewitt anticipated.
Avid Bioservices is rated a Moderate Buy, based on the recommendations of two analysts. The average price target for CDMO stock is $12.50, representing a 1.46% potential change from current levels.
Final Analysis of Avid
Avid Bioservices is currently facing an interesting dichotomy. The company has solidified its position in the marketplace, buoyed by significant market shifts and key legislative developments. It has a robust late-stage pipeline that predicts significant future recurring revenue streams. This strong position has led to a proposed acquisition by GHO and Ampersand, valued at approximately $1.1 billion.
Despite this, Avid’s shareholders have expressed concern at the price and timing of the bid, arguing it undervalues the company’s potential. In the meantime, the company continues to post strong results, with revenues and new business signings seeing a positive uptick in the first quarter of Fiscal 2025. The market’s view remains cautiously optimistic, seeing the stock as a Moderate Buy. With this complex scenario unfolding, savvy investors will want to watch Avid Bioservice’s trajectory carefully.
