On December 7, 2023 Avid Bioservices, Inc. (NASDAQ:CDMO), a dedicated biologics contract development and manufacturing organization (CDMO) working to improve patient lives by providing high quality development and manufacturing services to biotechnology and pharmaceutical companies, reported financial results for the second quarter and six months ended October 31, 2023 (Press release, Avid Bioservices, DEC 7, 2023, View Source [SID1234638229]).
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Highlights from the Quarter Ended October 31, 2023, and Other Events:
"Second quarter revenues were impacted by a number of factors, requiring us to decrease our revenue guidance for the 2024 full fiscal year. With these factors now behind us, we are looking ahead to the second half of the year with some optimism. This outlook is driven in part by the fact that we expect revenue growth during the second half of the fiscal year, aided by our new business bookings of $35 million during the period. While we continue to see an increase in our late-stage project portfolio, which we view as critical to our medium and longer-term growth, we were also pleased to see some encouraging signs of early-stage programs advancing during the quarter despite the challenging macro environment," stated Nick Green, president and CEO of Avid Bioservices.
"We are pleased to have closed the quarter with a higher cash balance as compared to the end of the prior quarter, and while we have seen no requirement to utilize the credit revolver put in place earlier this year, during the quarter we agreed to extend the term through calendar Q3 2024. We were also pleased to complete construction of the cell and gene therapy (CGT) facility as planned, which also coincided with the signing of our second customer for the business. The CGT business also received further industry validation through our acceptance into the California Institute for Regenerative Medicine (CIRM) Industry Resource Partner Program. With the achievement of our CGT construction milestone, Avid has completed all phases of a broad multi-year expansion, and we are now well-positioned to meet the manufacturing needs of current and future clients advancing both mammalian and CGT products. As we stand today the business has revenue generating capacity of up to approximately $400 million, supported by a record high $199 million backlog, which includes late phase programs that we anticipate will utilize a portion of this new capacity.
"Despite the challenges of the first half of fiscal 2024, our current backlog and pipeline position us well to generate cash from operations in the near term, and significant growth in the medium-term and beyond. For these reasons, we believe the second half of the year holds great promise and opportunity for Avid."
Financial Highlights and Guidance
The company is adjusting revenue guidance for full fiscal year 2024 to $137 million to $147 million, previously $145 million and $165 million.
Revenues for the second quarter of fiscal 2024 were $25.4 million, representing a 27% decrease as compared to revenues of $34.8 million recorded in the prior year period. For the first six months of fiscal 2024, revenues were $63.1 million, a 12% decrease compared to $71.4 million in the prior year period. The decrease in revenues for both periods as compared to prior year periods was primarily attributed to fewer year to date manufacturing runs, a reduction in process development services from early-stage customers, and a reduction of revenue for changes in estimated variable consideration under a contract where uncertainties have been resolved.
As of October 31, 2023, the company’s revenue backlog was $199 million, representing an increase of 35% compared to $147 million at the end of the same quarter last year. The company expects a growing portion of its backlog will extend beyond a year.
Gross margin for the three months ended October 31, 2023, was negative 18% compared to 12% for the same period in the prior year. Gross margin for the first six months of fiscal 2024 was negative 1%, compared to a gross margin of 19% for the same period during fiscal 2023. The decrease in gross margin percentage for both periods as compared to the same prior year periods was primarily driven by lower manufacturing volumes and costs related to expansions of both our capacity and our technological capabilities. This included adding staff and associated overhead, including depreciation expense, that we believe will provide critical capacity for near and medium-term growth. Margins during the three and six months ended October 31, 2023, were also impacted by the decision to defer a customer’s PPQ campaign until after our annual maintenance shutdown in the second quarter combined with a reduction of margin for changes in estimated variable consideration under a contract where uncertainties have been resolved. The decrease in gross margin for the first six months of fiscal 2024 was further impacted by a terminated project relating to the insolvency of one of our smaller customers and a delay in our ability to recognize revenues of a customer product pending the implementation of a process change. Excluding all of these factors, our second quarter and our year-to-date adjusted gross margin would have been two percentage points and one percentage point lower than the reported gross margin in the same prior year periods, respectively.
Selling, general and administrative (SG&A) expenses for the second quarter of fiscal 2024 were $6.6 million, a decrease of 4% compared to $6.8 million recorded for the second quarter of fiscal 2023. The decrease in SG&A for the second quarter was primarily due to a decrease in payroll and other benefit expenses and other professional fees. SG&A expenses for the first six months of fiscal 2024 were $12.8 million, a decrease of 3% compared to $13.2 million recorded in the prior year period. The decrease in SG&A for the six months was primarily due to a decrease in legal, accounting and other professional fees.
During the second quarter of fiscal 2024, the company’s net loss was $9.5 million or $0.15 per basic and diluted share, compared to a net loss of $1.2 million or $0.02 per basic and diluted share for the second quarter of fiscal 2023. For the first six months of fiscal 2024, the company recorded a net loss of $11.6 million or $0.18 per basic and diluted share, as compared to net income of $0.4 million or $0.01 per basic and diluted share, during the same prior year period.
Avid reported cash and cash equivalents on October 31, 2023, of $31.4 million, compared to $38.5 million on April 30, 2023. The second quarter cash and cash equivalents balance represents a 26% increase compared to $24.9 million at the end of the first quarter of fiscal 2024.
More detailed financial information and analysis may be found in Avid Bioservices’ Quarterly Report on Form 10-Q, which will be filed with the Securities and Exchange Commission today.
Recent Corporate Developments
The company’s commercial team signed multiple new orders during the second quarter of fiscal 2024, totaling approximately $35 million net, and resulting in a record high backlog of $199 million. These orders span process development to commercial manufacturing, including cell and gene therapy services. While the majority of these new orders continue to be later-stage projects, we were pleased to see a return of early-stage projects in the mix during the quarter. We will continue to pursue projects at every stage of development in order to maintain a diversified pipeline.
During the quarter, Avid completed construction of the company’s CGMP manufacturing suites within its new, world-class cell and gene therapy (CGT) development and CGMP manufacturing facility, as scheduled. The newly launched CGMP manufacturing suites are currently undergoing final environmental monitoring and performance qualification. With the completion of this latest and final expansion project, Avid estimates that its combined facilities now have a total revenue generating capacity of up to approximately $400 million annually. Avid plans to commemorate the completion of the CGT facility by hosting a celebratory grand opening in January 2024.
Subsequent to quarter end, Avid entered into an industry partnership with the California Institute for Regenerative Medicine (CIRM), which the company believes will further strengthen its presence broadly among CDMOs, and more specifically as a manufacturer of cell and gene therapy products. With $5.5 billion in funding and more than 161 active stem cell programs in its portfolio, CIRM is dedicated to the advancement of manufacturing for adeno-associated adenovirus, as well as other cell and gene therapy programs within the state of California. Under terms of the partnership, Avid has joined the CIRM Industry Resource Partner Program to provide development and CGMP manufacturing services to CIRM-funded programs. The company will assist CIRM’s partners in accelerating gene therapy development and manufacturing through its suite of CDMO services, which span process and analytical development, cell banking, virus banking, drug substance manufacturing, and fill-finish activities. CIRM-funded programs will be offered access to Avid’s services in order to reduce the timelines required to advance through clinical development. All partnership activities will be performed in Avid’s recently launched, world-class CGT CGMP manufacturing facility.
As previously reported, on March 14, 2023, the company entered into a credit agreement (the "Credit Agreement") with certain guarantors, certain lenders and Bank of America, N.A., as administrative agent and letter of credit issuer. The Credit Facility was initially set to mature on March 13, 2024. On October 27, 2023, the company entered into an amendment to this Credit Agreement extending the maturity date to October 2024. This amendment also included a change to the applicable interest rate applied to loans under the credit facility and increased the aggregate amount of indebtedness the company can incur at any one time for fixed or capital assets. The other material terms of the Credit Agreement remained unchanged. While the company has no current plans to draw down on this facility, Avid views this instrument as a valuable short-term tool.