Avid Bioservices, Inc. (CDMO): A Bull Case Theory

We came across a bullish thesis on Avid Bioservices, Inc. (CDMO) on Twitter by northeasternsvf. In this article, we will summarize the bulls’ thesis on CDMO. Avid Bioservices, Inc. (CDMO)’s share was trading at $12.20 as of Nov 13th. CDMO’s trailing and forward P/E were 9.41 and 88.50 respectively according to Yahoo Finance.

A scientist researching the innate and adaptive immune response in a biopharmaceutial laboratory.

Avid Bioservices, Inc., a contract development and manufacturing organization (CDMO) specializing in biopharmaceuticals derived from mammalian cell cultures, is positioned for significant growth driven by both market developments and legislative tailwinds. The company offers a range of services, including process development, clinical and commercial manufacturing, and regulatory support, focusing on biologics like monoclonal antibodies and recombinant proteins. Avid operates a state-of-the-art facility in California, capable of managing both small and large-scale production for a wide array of clients, including leading biotech and pharmaceutical companies.

Avid’s business outlook is especially promising due to a potential expansion of its customer base following the acquisition of Catalent by Novo Holdings. As part of the deal, Novo Nordisk acquired Catalent’s three large fill-finish sites to alleviate capacity constraints for its GLP-1 drugs, Ozempic and Wegovy. This transaction is set to create a significant opportunity for Avid, as its largest customer, Halozyme Therapeutics, currently splits production between Avid and Catalent. Given Halozyme’s competition with Novo Nordisk, it is likely that Halozyme will opt to move more of its production to Avid, which would expand Avid’s business without requiring the lengthy FDA review process.

Avid’s prospects are further enhanced by the BIOSECURE Act, a piece of legislation currently awaiting Senate approval, which will restrict U.S. federal funds from being used by companies that procure services from certain “biotechnology companies of concern,” including Chinese firms like WuXi Biologics. As a domestic company with a strong regulatory track record and significant spare capacity at its facilities, Avid is well-positioned to absorb business lost by other CDMOs and benefit from this shift in the industry.

Additionally, Avid’s increasing focus on late-stage pipeline projects sets it up for significant recurring revenue streams in the coming years. Over the past three years, late-stage revenue has grown by 150%, and the company’s pipeline composition is shifting toward a higher percentage of commercial and late-stage assets. The current late-stage projects have the potential to generate between $100 million and $200 million annually in recurring revenue post-approval, which will increase as Avid continues to sign new customers and expand its capacity.

While Avid Bioservices faces risks, including the possibility that Catalent may maintain its independence from Novo Nordisk, which could delay Halozyme’s shift in production to Avid, and the potential for setbacks if clients’ drugs fail in FDA reviews, the company’s strong track record in FDA approvals positions it well to navigate these challenges. With a proven ability to secure regulatory approvals and a solid growth trajectory, Avid remains well-placed to capitalize on significant opportunities in the CDMO space. Given its potential for future expansion and solid business fundamentals, Avid’s intrinsic value is estimated at $29.27, offering an attractive upside of 182.8%.

Avid Bioservices, Inc. (CDMO) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 26 hedge fund portfolios held CDMO at the end of the second quarter which was 24 in the previous quarter. While we acknowledge the risk and potential of CDMO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CDMO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.