Avid Bioservices, Inc. (CDMO) CEO Roger Lias on Q2 2019 Results - Earnings Call Transcript

About: Avid Bioservices, Inc. (CDMO)
by: SA Transcripts
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Earning Call Audio

Avid Bioservices, Inc. (NASDAQ:CDMO) Q2 2019 Earnings Conference Call December 10, 2018 4:30 PM ET


Tim Brons - Investor Relations

Roger Lias - President and Chief Executive Officer

Daniel Hart - Chief Financial Officer

Tracy Kinjerski - Vice President, Business Operations


Joseph Pantginis - H.C. Wainwright & Co.

Paul Knight - Janney Montgomery Scott LLC

Steven Schwartz - First Analysis Securities


Good day, ladies and gentlemen, and welcome to the Avid Bioservices’ Second Quarter 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call may be recorded.

I would now like to hand the conference over to Tim Brons of Avid’s Investor Relations Group. Please go ahead.

Tim Brons

Thank you. Good afternoon, and thank you for joining us. On today’s call, we have Roger Lias, President and CEO; Dan Hart, Chief Financial Officer; and Tracy Kinjerski, Vice President of Business Operations.

Today, we will be providing an overview of Avid Bioservices’ contract development and manufacturing business, including updates on corporate activities and financial results for the quarter ended October 31, 2018. After our prepared remarks, we will welcome your questions.

Before we begin, I’d like to caution that comments made during this conference call today, December 10, 2018 will contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, concerning the current belief of the company, which involves a number of assumptions, risks and uncertainties. Actual results could differ from these statements, and the company undertakes no obligation to revise or update any statement made today. I encourage you to review all of the company’s filings with the Securities and Exchange Commission concerning these and other matters.

With that, I will turn the call over to Roger Lias, President and CEO. Roger?

Roger Lias

Thank you, Tim, and thanks to all of you who’ve dialed in, who are participating today via the webcast. The second quarter was very important for Avid and a successful one, as we continued to execute the plan and build the foundation needed for significant future growth in an exciting and dynamic market space. While the period may have seemed quiet from the outside, I can assure you that it was quite the opposite.

During the quarter, we made significant progress in positioning the company for strong growth and transition to profitability. We’ve continued process development, laboratory expansion and upgrades and executed the most comprehensive maintenance overhaul in the company’s history.

While these vital improvements were being made, we continued to execute existing projects in both process development and manufacturing according to plan and have progressed and importantly, expanded current client programs.

The focus of our process development team on timely execution of current revenue-generating customer projects limited our ability to onboard any significant new projects during the quarter, though the expansion and improvements being implemented in this area now allow us to advance numerous ongoing discussions with new customers. And Tracy will provide an update on progress in this area and her discussion of our business operations.

In addition to customer discussions, we’re also exploring other potentially beneficial collaborations with highly qualified players in the biologics manufacturing arena. As these activities have been progressing, we’ve been diligently managing our cash in order to position Avid Bioservices to transition to cash generation and positive EBITDA.

As mentioned during our Q1 call, the precise point at which we hit these important milestones is to some extent, dependent on issues that are out of our direct control, such as scientific and technical progress and the scheduling of existing client programs. Given the improving visibility that we have today, however, we’re very pleased with the steady progress we continue to make towards these goals.

I’ll provide more details on all of these matters, including the maintenance overhaul and the enhancement of the process development capabilities following the review of financial results from Dan.

So with that, I’ll turn it over to him to provide a financial overview.

Daniel Hart

Thanks, Roger. Before I begin, I’d like to recommend that everyone participating refer to Avid’s 10-Q filing with the Securities and Exchange Commission, which we filed today for additional details.

I’ll now discuss our financial results from continuing operations for the second quarter ended October 31, 2018 starting with revenue. As a reminder, Avid has provided revenue guidance for the full fiscal year 2019 of between $51 million and $55 million under the ASC 606 revenue recognition standard and today we are reaffirming this goal.

We remain confident in our ability to meet this guidance despite a decline in revenues during the second quarter of fiscal 2019, as compared to the prior year period. Specifically, Avid recognized revenue of $10.2 million, a decrease of 20%, as compared to $12.8 million in the second quarter of the prior year.

Our current period revenues were impacted by our planned sequential shutdown of both Franklin and Myford manufacturing facilities that occurred during the quarter in order to conduct broad scale and significant overhaul maintenance and upgrades. During this period, manufacturing was halted for several weeks creating idle capacity and a decline in revenues compared to the same prior year period.

While these shutdowns obviously limited revenue generated – generating opportunity during the quarter, they are critical to maintaining regulatory compliance and the highest standards for manufacturing. All reputable biologic manufacturers, including CDMOs, conduct such maintenance programs on an annual basis. Roger will give more detail as to the specifics of the maintenance overhaul following my review.

For the six months ended October 31, 2018, revenues were $22.8 million, a 43% decrease, as compared to revenues of $39.9 million during the prior year period. This decrease was primarily attributed to a few key factors, including the aforementioned shutdown and maintenance in Q2, the previously discussed reduction and requirement for materials by commercial clients and the fact this year represents our transition year to a dedicated CDMO. On a positive note, each of these factors will immediately contribute to new growth and increase to future revenue.

Supporting our revenue goal is our backlog, which as of October 31, 2018 was $36 million, the majority of which we expect to recognize in fiscal 2019. Gross margin for the second quarter was a positive 3.3%, a significant increase compared to a negative gross margin of 27.1% in the prior year period.

Idle capacity cost of $2.9 million during the second quarter of fiscal 2019 negatively impacted gross margin by 29 percentage points. The increase in gross profit for the quarter was primarily attributed to product mix, resulting in an improved overhead efficiencies, combined with a decrease in idle capacity cost.

Gross margin for the six months ended October 31, 2018 was 6.7%, a 16% decrease compared to the 8% in the prior year period. This decrease was primarily attributed to the variability of product cost, offset by a favorable reduction in idle capacity cost. It was gratifying to see our margins improve during the second quarter and they would have been further improved had we not incurred additional idle capacity due to the maintenance overhaul.

As we’ve stated previously, given the fixed costs associated with highly regulatory – regulated biologics manufacturing under current good manufacturing practices, margins will continue to be impacted until capacity utilization is increased. To this end, we continue an aggressive effort to both expand our customer base and extend current client projects to increase our backlog and enhance capacity utilization.

Turning now to operating expenses. During the prior year quarter ended October 2017, we incurred charges of $1.6 million directly related to a restructuring plan we implemented in August of 2017. For more information on the restructuring, please refer to our annual report on Form 10-K for the year ended April 30, 2018. The remaining discussion of SG&A excludes the impact of these restructuring charges.

Total SG&A expenses for the second quarter of fiscal 2019 were $2.8 million, a 22% decrease compared to the $3.6 million in the second quarter of fiscal 2018. The decrease in the quarter was driven primarily by a reduction in facility costs and professional fees, including legal and accounting.

For the six months of fiscal 2019, SG&A expenses were $6 million, a 19% decrease compared to $7.4 million in the first six months of fiscal 2018. The decrease for the first six months of fiscal 2019 was primarily due to a reduction in personnel-related cost, facility cost and professional fees during the period.

For the second quarter of 2019, the company recorded consolidated net loss attributable to common stockholders of $2.9 million, or $0.05 per share, compared to a consolidated net loss attributable to common stockholders of $14.1 million, or $0.31 per share for the same prior year quarter.

For the six months of fiscal 2019, the company recorded a consolidated net loss attributable to common stockholders of $5.9 million, or $0.11 per share, compared to a consolidated net loss attributable to common stockholders of $16.4 million, or $0.36 per share for the six months of fiscal 2018.

The improvements in both the 2019 second quarter and six-month period also included the sale of average remaining legacy R&D asset, r84, to Oncologie Incorporated, for $1 million upfront. r84 is a preclinical novel therapeutic antibody asset targeting VEG-F that has demonstrated anti-tumor activity in animal models.

Under the terms of the asset purchase and assignment agreement, Avid is eligible to receive up to an additional $21 million in the event that Oncologie achieves certain development, regulatory and commercialization milestones with respect to r84, as well as royalties on net sales that are in the low to mid single digits in the event that Oncologie commercializes and sells products utilizing r84.

Cash and cash equivalents as of October 31, 2018 were $32.7 million, compared to $42.3 million at the fiscal year ended April 30, 2018. This concludes my financial overview.

I will now turn the call back over to Roger to address some key activities and achievements during the second quarter of fiscal 2019.

Roger Lias

Thank you, Dan. As I stated at the beginning of the call, the second quarter was a very busy and productive time for Avid. Though most of our advancements took place behind closed doors, we’ve made important foundational progress across all sectors of the business.

So firstly, I’d like to address the planned sequential maintenance shutdowns of both the Franklin and Myford manufacturing facilities. In the past, the former subsidiary of Peregrine Pharmaceuticals, Avid has implemented primarily limited rolling overhauls that while allowing basic maintenance did not allow the implementation of certain critical upgrades and maintenance procedures necessary to mitigate risk and ensure efficient bioprocessing.

Our last full shutdown was undertaken on the Franklin facility in 2013. Realizing that a scheduled annual shutdown is potentially a new concept to many of our stockholders, I thought it would be useful to provide some additional context regarding the importance of these efforts.

While planned facility shutdowns to allow overhaul and maintenance are not specifically required by industry authorities, there are some activities the execution of which are essential to meeting regulatory requirements and reducing risk. These activities include, but are not limited to, the maintenance of equipment and facilities to continue to meet required commercial quality standards, periodic upgrades to and recalibration of equipment and the installation of new systems and equipment essential to maintaining our ability to meet the needs of our customers.

So annual planned shutdowns have become an industry standard and an essential part of maintaining compliance and ensuring the highest quality service and product for customers and, of course, the timely delivery of safe medicines to patients. One of the reason that most biologics manufacturers then execute a full and complete planned overhaul of manufacturing facilities on a one-time annual basis is the complex nature of the effort.

So the shutdowns require truly tremendous coordination between contractors, equipment vendors and company staff, with the goal of minimizing the impact to operations and maintaining customer project timelines. Because no manufacturing work can be conducted during the full overhaul, facilities become idle from a revenue-generating perspective during the shutdown period.

The planned annual overhauls that we successfully executed during the second quarter of this fiscal year were longer in duration than will typically be required going forward, and this is for a number of reasons. In the case of a Franklin facility, we undertook very significant maintenance and upgrade work necessitated by the age of the facility that had not been adequately addressed previously.

In the case of the newer Myford facility, it was necessary to complete some work associated with the commissioning the facility and to add backup power to the laboratory areas, new monitoring systems and some redundancy.

The Franklin facility as a result will shutdown for a total of 23 days and the Myford facility for 22 days during the second quarter. Future more routine annual shutdowns will likely span seven to 14 days per facility, dependent on the exact nature of the work performed each year.

It’s also important to note the facilities have to be first declassified prior to any such shutdown and they must then be reclassified prior to resuming cGMP operations. During the de and reclassification periods, scheduling inefficiencies also, by definition, impacted.

Given the loss of revenue opportunity occasioned by the declassification shutdown and reclassification of manufacturing facilities, I’m pleased with our financial performance during the quarter. I’m also very happy with the performance of our team in efficiently executing these complex activities, both manufacturing facilities are back to full operational status. It’s important to note that our process development services were not impacted by the shutdowns and work in our labs continued during the period.

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.

As detailed previously, our legacy process development facilities lacked investment and scale and were not of a standard necessary to compete effectively within the global biologic CDMO space.

As a result and as many of you are already aware, we’re currently investing in significant upgrades to our labs and related equipment that will allow us to best serve the needs of existing customers to win new business and to grow our manufacturing pipeline. As we expand and improve our facilities and capabilities in this area, we’ve taken great care to phase this work so as not to disrupt any ongoing projects.

As we reported last quarter, our first refurbished laboratory, which is the purification development, has been completed and is now fully operational. Ongoing work includes the installation of a major new upstream development laboratory suite that supports development of cell culture processes, as well as other refurbishment work within our existing buildings. These new laboratories are being outfitted with state-of-the-art equipment that introduce considerable efficiencies.

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.

So today, our process development group is operating as a standalone profit center and contributing immediate and meaningful revenues. As we progress through the current fiscal year, we add qualified process development scientists, analysts and associates. We open new labs, commission new equipment and continue phase laboratory improvements, we look forward to commencing work on additional new projects and the further extension of existing programs.

Before handing over to Tracy to discuss some really good progress being made in the business operations area, I’d like to reiterate the importance of our staff in achieving our goals. Demand for qualified biologics development, manufacturing and quality professionals is truly exceptionally high around the globe currently, and the job market in the biomanufacturing field is highly competitive.

In common with our peers, hiring is slower than we would like. But I’m pleased to be able to report that we are identifying and hiring extremely well-qualified and capable candidates into open positions. Continuing to identify and retain qualified personnel is a vital component of our business and critical to growth. And as a result, we have commenced numerous initiatives in this area to ensure that Avid is visible to prospective qualified employees and viewed as an attractive employer, both in the broad biomanufacturing market and in our geographic location.

So with that, I’m now happy to be able to turn over the call to Tracy to provide an update on our business operations activities. Tracy?

Tracy Kinjerski

Thanks, Roger. As Roger detailed in our previous earnings calls, our market segment, development and manufacturing services for biopharmaceuticals derived from from mammalian cell culture remains extremely robust. We are seeing strong demand for our services and we anticipate an extremely busy second-half of this fiscal year.

Of course, some of the strong demand that we’re seeing at Avid is being driven by our continued enhanced marketing effort, as we bring new awareness of Avid and our capabilities to target audiences that have previously not been aware of us as a CDMO. The efforts of our newly hired business development leads in both the Eastern and Western halves of North America have been a part of the increased market penetration.

The number of requests for proposals received doubled between quarter one and quarter two, and the number of proposals issued also doubled during the same period. Perhaps more importantly, the quality of the requests for proposals being received has also greatly improved, allowing us to be more selective and to target opportunities from potential clients that represent a good fit for our existing capabilities and installed capacity.

Our marketing efforts have included a stepped-up media campaign, resulting in significant increased column, inches and media outlets targeted to our commercial audience. These included activities such as interviews, articles and webcasts. We’ve also had strong showings at multiple important trade shows and industry conferences over the last few months, each of these building our visibility within the industry. As a result, the number of new business discussions in which our team is actively engaged continue to grow.

I’m also pleased with the progress we’re making with longer lead customers looking to engage in new manufacturing partner in the 2020 timeframe and beyond. These tend to be more established potential clients with significant forward-planning. The sales cycles for these opportunities is significant.

Before making substantial contracted commitments, these potential clients will further evaluate Avid through additional activities, such as significant technical meetings and reviews, quality audits, financial audits and environmental health and safety audits in order to place us on preferred vendor list and for us to be considered for future opportunities.

These activities draw considerable resources from throughout our organization, but are vital. Though this process and related commercial conversations take more time than we like, our discussions are progressing as expected, and we anticipate securing contracts with several of these organization.

I’m pleased to be able to report that we’re currently engaged in negotiations on two substantial new projects, and we look forward to providing further details on these projects once the anticipated contractual agreements are finalized. Equally as important as engaging new customers is the increasing strength of our relationships with our existing customers.

During the second quarter, we gained increased visibility into forecast for several of our larger ongoing programs. Customer concerns related to confidentiality prevent us from sharing these specific projections based on this information at this time, but we believe demand from these customers will positively impact revenue, margins and capacity in the coming quarters.

Unsurprisingly, given the history of the relationship between our two companies and its importance, we are frequently asked about our business with Halozyme Therapeutics and the outlook for continued commercial manufacturer of enzyme products used in their enhanced platform by their partner companies such as Roche.

Our relationship with Halozyme remains strong and we were able to review, both technical and commercial progress with our colleagues there at a recent business review meeting. Halozyme’s booked sales of recombinant human hyaluronidase enzyme and enhanced drug products have recently increased, and this trend is expected to continue into 2019, as Halozyme partners advance their clinical programs and begin preparing for commercialization.

In the short-term, Avid will continue to execute against our regularly updated forecast, and we look forward to increasing our support of Halozyme and their growing list of partners in the not too distant future.

As has been detailed previously, ours is a sticky business and contracted commitments from clients extend and expand as their programs progress through clinical development. During the second quarter, we signed expansion orders for many of our current projects. These developments highlight the value of our existing customer relationships as a valuable source of revenue and growth now and in the future.

In addition to ongoing communication with you and existing clients, we are also entertaining numerous dialogues with vendors and other industry stakeholders as we evaluate possible technology collaborations and other relationships that will allow us over time to introduce additional efficiencies in both process development and manufacturing and in some cases, provide the opportunity for additional new client capture.

In summary, before I hand the call back to Roger for closing remarks, our market opportunity remains considerable. And as we become better-positioned to take advantage of this through the expansion of our process development capabilities and the numerous other initiatives designed to support strong future growth and profitability, I’m excited about bringing you news of very positive developments in the coming two quarters and into fiscal year 2020. Roger?

Roger Lias

Thank you, Tracy. In closing, I’d like to briefly revisit and highlight the important strides that we’ve made during the second quarter, many of which are crucial as we continue to build a very solid foundation for the future. The transition from underfunded excess capacity provided to a dedicated pure play biologic CDMO is, I believe more significant undertaking than understood by most – than understood by most based on our starting point.

From the formal kickoff of Avid Bioservices less than 12 months ago concurrent with the JPMorgan Healthcare event in San Francisco, we remain consistent in our message, as we continue to transition this business.

Our business development and project management functions that were lacking under the previous model and now delivering and the expansion of process development capabilities is now fully in progress, allowing us the ability to win and onboard new business and expand and diversify our client base. Both are key cornerstones of our business and they, along with other key initiatives, will deliver what we expect to be a strong and profitable business in fiscal 2020.

We’ve made significant investments in infrastructure that while limiting our revenue-generating potential during this past second quarter, will allow us to provide high-quality and efficient services going forward with minimized operational and regulatory risk to our customers. Separate from our maintenance activities, we also continue to invest in expanding and enhancing our process development laboratories and capabilities.

Our business development team has made very significant progress during the quarter and average visibility continues to improve in the global marketplace. We’re generating high-quality opportunities and are in negotiations with new projects and advancing longer lead time discussions with potential commercial customers.

Importantly, during the second quarter, we also signed expansion orders with many of our current customers. Our backlog remains robust and we have good visibility on opportunities well into the next fiscal year. There remains more work to be done to complete our foundations for growth in our transition, but this comes along side a very considerable opportunity.

So in closing, I’m pleased with the progress that we’ve made during the second quarter of the fiscal year, as we execute the plan and to continue to put the necessary building blocks in place to support a strong second-half in fiscal 2020 as a dedicated biologics contract development and manufacturing organization.

So this concludes my prepared remarks for today, and we’ll now open the call up for questions. Operator?

Question-and-Answer Session


Yes, sir. [Operator Instructions] Our first question or comment comes from the line of Joe Pantginis from H.C. Wainwright. Your line is open.

Joseph Pantginis

Hey, guys, good afternoon. Thanks for taking the questions. Just wanted to get a sense of – wrap my arms a little bit around the upcoming planned and expected maintenance in the facilities. So is this the time of the year that we should generally expect them are the ones that happened really the only full shutdowns we’ll see for a while or they’re more phased going forward, just wanted to get a sense of the forward-looking aspect?

Roger Lias

Yes. Hey, Joe, it’s Roger. How are you?

Joseph Pantginis

Good, good, thanks.

Roger Lias

Yes. So obviously, we’ve completed really a much more major shutdown and maintenance overhaul than we would expect on an annual basis. So it’s good to get that behind us a lot of necessary work that perhaps haven’t been taken care of in the past few years.

Going forward, I think, what we’d anticipate is an annual planned shutdown. Again, probably at around this time of year, it doesn’t have to be coordinated, so it’s absolutely at the same time or month even going forward, but this is probably typically annual the is way we would do it. And as mentioned during the call, more typically, I think, the shutdown is likely to be between one and two weeks for routine annual shutdown now that a lot of the major work is being taken care of.

Now it can change a little bit year-to-year obviously, if we’re installing a lot of new equipment. For instance, it might take a little bit longer, it could take a little bit less if things are humming along well. So in summary then, I’m not sure if I’m answering your question correctly. But I think so, these will be annual, they will be plans, they will be between one and two weeks in duration and they will be around this time of year same second quarter, although they don’t have to be.

Joseph Pantginis

No, you certainly answered. Thanks for that. And then you certainly highlighted on the call all of you, your strong presence at like trade shows and technical shows, so I know this question might touch upon maybe proprietary information. But with all of the sort of advertisements and presence that you have, what do you – what else do you highlight, say, from a scientific or technical advancements standpoint that you guys have succeeded with that potentially give you a competitive edge in attracting new business?

Roger Lias

Yes, and I’ll perhaps go first, but Tracy may want to add comments as well. I think, really we’re unusual, Joe, what is attractive to us, so with the short-term, we have capacity available, of course, and that’s something that will change as we fill. But that’s an interest in speed, whether it’s to clinical to market, so that helps us right now. Although, obviously, from the numbers point of view, we would rather have the capacity full.

But having that capacity available to us and useful in the marketplace really, I think, our main differentiators are a combination of our long regulatory track record, being releasing products for the Food and Drug Administration approved commercial products for about 13, 14 years now, alongside being if you like small enough and agile enough and with these incredible flexible facilities that we have, the new Myford facility, to be able to bring customers on quickly and efficiently. This just saying you have 2018 bioreactors doesn’t differentiate that much, it’s what you do with them that really counts. Tracy, do you have any extra comments, or…?

Tracy Kinjerski

Well, I would say that there’s a funnel, I think, to touch on and that is that Avid as a CDMO. is unique, in that we also have experience as a product development company. So from a scientific and technical perspective, we have folks that are here at Avid still who have been involved for many years in product development.

So when our clients come to us and they need help, they want to take their projects and their molecules through all the phases of clinical trials into market. We totally understand where they’re coming from and we really have empathy for their needs and the journey that they’re on, and I think that’s really very important point to consider.

Joseph Pantginis

Got it. Thanks a lot, guys.

Roger Lias

Thanks, Joe.


Thank you. Our next question or comment comes from the line of Paul Knight from Janney. Your line is open.

Paul Knight

Hey, Roger, how are you.

Roger Lias

I’m well, Paul. How are you doing?

Paul Knight

Great. Can you talk to the backlog. Backlog was down sequentially $60 million went to $36 million in this quarter. How much of that in your view was kind of planned from kind of the legacy business?

And then lastly, could – I know Tracy had mentioned the level of customer activity. Could she kind of repeat where she was on that? Was it a doubling or – if she could just give a little more color, again, I missed that part?

Roger Lias

Sure. With respect to the backlog, I mean, I don’t call it plan, but certainly, we anticipated that we wouldn’t see much growth in any backlog during this quarter, partly because, say, we were limited in our ability to actually bring on new business because of the runway on the process development space. So that was certainly anticipated.

On the plus side, during the quarter, of course, it gave us the opportunity then to say, we are in very active negotiation with a number of clients now that when we cut the ribbon on the new process development space in the New Year, we’re able to execute those programs going forward.

So it’s been a – if you like an iterative process, we have to bring some on, execute some, bring some on, execute some. But that funnel, if you like, that pipeline is now opening with the process development capabilities are expanded. So I would say, it was anticipated and I think we could equally anticipate the backlog will now grow again going forward.

Daniel Hart

And, Paul, I think, you’re probably also asking to backlog based on prior guidance 605 revenue recognition criteria versus 606. If you look at prior revenue recognition of 605, our backlog went from $60 million to $58 million, with the difference being revenue and the new contracts that we’ve signed up during the period.

Roger Lias

So it wasn’t much of a drop-off, so we might comparing apples to oranges, Paul.

Paul Knight

Yes, very helpful.

Roger Lias

And then, Tracy, you had the the question for Tracy about the sort of flow of business.

Paul Knight

Yes. Well, more specifically, the two customers or customers that you believe could be large customers. Are they from your existing lineup, or is it two new names?

Tracy Kinjerski

Yes. So, Paul, thank you for your question. So we are signing new projects with new clients. So I think that’s the question you’re asking. We have a lot of businesses coming in from existing clients, but the two I mentioned are new manufacturing opportunities for us. So they are significant and important part of our, I guess, our portfolio going forward.

And just to kind of reiterate, since our East and West Coast business development representatives have come online, they both have significant experience in the industry and have been instrumental in their role in helping us increase visibility in the market and doubling the number of high qualified high-high quality RFPs that we’ve received and proposals that we’re issuing as a result.

Paul Knight

And then lastly, Roger, what’s the state of the monoclonal antibody production market globally? Is supply – production supply tight, or enough is around? What is the status of the market right now for mAb production? Scripts seem to be up 20%, pipelines are big, where are we with production capacity globally in U.S.?

Roger Lias

Yes. I think, we’re following the market in terms of the strong demand for antibody, so the strong demand for manufacturing put simply. I – if you look at recent data, growth on the mammalian biologic CDMO space as a whole, which is in all antibodies, but it’s certainly driven primarily by antibody and antibody derivatives, depends whose statistics you read 15%, 16% annual growth.

I think, my view is, it’s a project-specific question really. For a specific project, you may well find it hard to find capacity or find capacity in the timelines you’re looking for or there might be geographic problems. But I think in general across the industry, we’re about – my personal opinion is, we’re about imbalanced right now.

We have seen huge investments in capacity, but it’s largely in Asia at the moment. And frankly for Avid, we don’t lose too much sleep about – over that. We’re not – we have a customer from Asia, but we’re not active in that marketplace, so it’s a very nuanced question, Paul. I mean, I think overall, we’re roughly imbalanced.

But if I were a customer with a need to enter the clinic in August of next year or something, I’d better done – I’ll be getting my capacity reserve now, because you’re going to find it tough sledding if you don’t.

Paul Knight

Yes. Okay, thank you very much.


Thank you. [Operator Instructions] Our next question or comment comes from the line of Steve Schwartz from First Analysis. Your line is open.

Steven Schwartz

Good afternoon, everyone.

Roger Lias

Hi, Hey, Steve.

Steven Schwartz

If we could continue with Paul’s question on the backlog, if I look at it sequentially the 39, you went about $10 million through revenue, you ended up at $36 million. It looks like the $6.3 million of project expansion orders is essentially what you booked new to the backlog in the quarter. Am I reading that correctly?

Roger Lias

That’s correct.

Steven Schwartz

Okay. And if you look at a forecast – the production forecast in the industry that runs out 12 to 18 months, what is it about being shutdown for three weeks that would hamper your ability to book new work?

Roger Lias

No, the shutdown had no impact on our ability to book new work, Steve, just to execute, obviously, manufacturing revenue-generating projects and recognize that revenue. The slight bottleneck we’ve had over the past quarter has been in process development. In fact, it’s precisely that it’s – the lab work that we need to bring these projects into manufacturing and, of course, it’s revenue-generating work in its own right as well. But the shutdown didn’t have any impact on our ability to book new work, in fact, just the opposite.

Steven Schwartz


Roger Lias

Our clients obviously like to see that we’re taking care of routine maintenance. We were able to install backup power and all sorts of things, which customers like to see. So that’s a positive going forward.

Steven Schwartz

Certainly. And I guess, I guess, I – just maybe I misinterpreted your comment that you expected the backlog build in the quarter to be light because of so many of these production-related activities that you had going on. So…

Roger Lias


Steven Schwartz

…and I guess, I would have expected the backlog in this circumstance to build exceptionally, given that you could not produce and given that, especially since you’re still expecting the same level of revenue for the year and then to work down a higher backlog from the second quarter through the second-half of the year?

Roger Lias

Yes, I’m not sure about. Go ahead.

Steven Schwartz

Yes. No, I’m just trying to reconcile kind of what my perspective is versus what I’m seeing in the numbers here with respect to revenue in the backlog, that’s all?

Roger Lias

I mean, essentially, we were able to – we didn’t bring on any new projects. So we were able to expand the value of existing projects to roughly the same value of the revenue we recognized during the quarter, roughly speaking, that’s what I meant by remaining roughly balanced.

Steven Schwartz

Yes. It’s nice to hear Tracy talk about the two new customers that are coming on potentially that, that you’re working with. If you were to secure projects from those new customers, can you give us some sense of the magnitude of what that would be? I mean, are we talking like $10 million, $15 million, again, just to give us some perspective relative to the existing backlog?

Roger Lias

Yes. I don’t think we can right now, Steve. We hope that we’ll be able to make announcements of those when they’re consummated, if you like, when the final ink is dry on those contracts.

Steven Schwartz

Yes. Okay, that’s it for me.

Roger Lias

They’re substantial. They’re material to our business, I think.

Steven Schwartz

Yes. Yes, okay. Certainly understand, but thought I would ask. This question – next question is just relative to production risk. When you do the shutdowns like you did, what’s the involvement of the FDA? And I would imagine, they’re involved, of course. And does that at all kind of reduce the risk going forward for the next couple of years that you have any 43s things like that, because you’ve done this work and they’re involved?

Roger Lias

Yes, the two questions. So the FDA actually isn’t involved. It’s entirely an internal exercise. And I guess what I’m looking at it is to stop the FDA from getting involved in future, because you’re doing your maintenance. So to the second part of the question, I think, it does reduce the probabilities that you’ll run into any future problems that’s the reason for doing it, I guess. But the FDA is not directly involved in this at all. This is an internal exercise.

Steven Schwartz

Okay, so I guess for now, the figuratively speaking, you put yourself in a much better position for future inspections?

Roger Lias

Yes, absolutely. And for execution on, it’s – we need to maintain our equipment and make sure that we’re delivering to our customers as well. So yes, very much so.

Steven Schwartz

For this upstream lab suite that you’re going to be starting up here in the next couple of months, is that the type of thing you can pre-sell, or is Tracy have to pretty much wait until the lights are on? You’ve got bodies in there and then you can go out and sell it, how does that work?

Tracy Kinjerski

So, Steve, actually, we haven’t stopped selling…

Steven Schwartz


Tracy Kinjerski

…during this period. So it’s not – it doesn’t impact whether or not we can bring projects forward. So it’s not a bad thing for – from a business development perspective at all. And actually, it does set us up to put us in a really nice position going forward, as we have additional projects coming our way, but it hasn’t hindered our ability to find.

Steven Schwartz

Okay. And then my last question, I think is for Dan. But this is just with respect to cash from operations. Over the past five quarters, essentially for the past five quarters, you’ve earned about $7 million in cash from operations. And now we are looking at the second-half of the year, where it looks like, production is definitely going to step up, revenue generation is going to step up. Can you give us any kind of guidance on what cash from operations might look like for third and fourth quarters?

Daniel Hart

Well, Steve, I think – thanks for the question. I think, what information have you that I’ll provided is the burn rate we’ve had for the last two quarters involved some of the legacy discontinued operations spend that was still on our balance sheet that we needed to clean up.

Going forward, as a pure-play CDMO, we’re going to start to see those wind down. And as our top line increases, our margins will continue to increase as we fill the idle capacity with and utilize that within our facilities and we’ll start to see a lot more of that drop to the bottom line.

Steven Schwartz

Yes, yes. Okay, thank you. I appreciate all taking the questions.

Roger Lias

Yes. Thanks, Steve.


Thank you. I’m showing no additional queues in – questions in the queue at this time. I would like to turn the call back over to Mr. Roger Lias for any closing remarks.

Roger Lias

Thank you very much, operator. So in closing, thank you, everybody, for your time today and your continued interest in Avid Bioservices. And as always, I’d certainly like to thank our Board of Directors, in particular, our employees, our investors and our many other stakeholders for continuing to support the company as we pursue our goals for growth and value creation. So with that we’ll conclude the call. Thank you, and have a great afternoon.


Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.