Avid Bioservices(CDMO) - 2020 Q4 - Annual Report

Part I ITEM 1. BUSINESS Avid Bioservices is a dedicated CDMO for biopharmaceutical drug substances, expanding capacity and market presence - Avid is a dedicated CDMO providing a comprehensive range of services from process development to CGMP clinical and commercial manufacturing for biopharmaceutical drug substances derived from mammalian cell culture[20] - In fiscal 2018, the company transitioned to a dedicated CDMO, changing its name to Avid Bioservices, Inc., selling its R&D technologies, and ceasing research and development activities[21] - The company's growth strategy includes investing in additional manufacturing capacity, expanding its customer base, and increasing operating profit margins[22] Customer Revenue Concentration | Fiscal Year | Revenue from Top 3 Customers | | :--- | :--- | | 2020 | 63% | | 2019 | 64% | | 2018 | 86% | Backlog Growth | Date | Backlog (approx.) | | :--- | :--- | | April 30, 2020 | $65 million | | April 30, 2019 | $46 million | ITEM 1A. RISK FACTORS The company faces risks from historical losses, customer concentration, operational complexities, and potential stock dilution - The company has a history of losses, incurring a net loss of $10.5 million in fiscal 2020 and having an accumulated deficit of $571.1 million as of April 30, 2020[64] - A significant portion of revenue comes from a limited number of customers, with the top three customers accounting for approximately 63% of revenues in fiscal 2020[66] - The business is exposed to risks from global health epidemics, such as the COVID-19 pandemic, which could disrupt customer operations, supply chains, and clinical trials[61] - The company relies on third parties for most necessary raw materials, and an inability to obtain these supplies, particularly from single-source suppliers, could adversely impact operations[92][93] - Ownership of common stock is subject to risks including dilution from the potential issuance of up to 6.8 million shares upon conversion of Series E Preferred Stock and 6.9 million shares under equity plans[117][118] ITEM 1B. UNRESOLVED STAFF COMMENTS The company reports no unresolved staff comments - Not applicable[131] ITEM 2. PROPERTIES Avid leases 158,000 square feet of office and manufacturing space in Tustin, California - The company leases a total of approximately 158,000 square feet of office, manufacturing, laboratory, and warehouse space in Tustin, California[132] - The leases are non-cancellable operating leases with termination dates in 2023 and 2027, all containing options to extend[133][134][135] ITEM 3. LEGAL PROCEEDINGS No material legal proceedings are currently pending against the company - The company is not currently a party to any legal proceedings expected to have a material adverse effect on its financial condition or operations[136] ITEM 4. MINE SAFETY DISCLOSURES The company has no mine safety disclosures - Not applicable[137] Part II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common stock trades on NASDAQ with no dividends, while Series E Preferred Stock pays a 10.50% cumulative cash dividend - The company's common stock is listed on The NASDAQ Capital Market under the trading symbol "CDMO"[140] - No cash dividends have ever been declared or paid on common stock, and none are anticipated in the foreseeable future[142] - Holders of Series E Preferred Stock are entitled to cumulative cash dividends at 10.50% per annum, with approximately $4.3 million paid each year in fiscal 2018-2020[143][145] ITEM 6. SELECTED FINANCIAL DATA This section summarizes five years of financial data, including fiscal 2020 revenues of $59.7 million and a net loss of $10.5 million Selected Financial Data (in thousands) | Metric | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Revenues | $59,702 | $53,603 | $53,621 | | (Loss) income from continuing operations | $(10,466) | $(5,056) | $(20,563) | | Net loss | $(10,466) | $(4,215) | $(21,813) | | Net loss attributable to common stockholders | $(15,152) | $(8,901) | $(26,499) | | Cash and cash equivalents | $36,262 | $32,351 | $42,265 | | Total assets | $107,620 | $78,395 | $95,760 | ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Fiscal 2020 revenues reached $59.7 million, up 11%, but gross profit declined to $3.9 million due to production issues Fiscal Year 2020 vs. 2019 Results (in millions) | Metric | FY 2020 | FY 2019 | Change | | :--- | :--- | :--- | :--- | | Revenues | $59.7 | $53.6 | +11% | | Gross Profit | $3.9 | $7.2 | -46% | | Gross Margin | 7% | 13% | -6 p.p. | | Operating Loss | $(10.9) | $(5.6) | +95% | - The increase in FY 2020 revenue was driven by an $8.6 million increase in manufacturing revenue, partially offset by a $2.5 million decrease in process development revenue[178] - The decrease in gross profit was primarily due to higher costs related to a production interruption, planned growth in payroll, and increased depreciation[179] - As of April 30, 2020, the company had $36.3 million in cash and cash equivalents and believes it has sufficient liquidity for at least the next 12 months[201][202] - The company received a $4.4 million PPP loan in April 2020, which it subsequently repaid in full in May 2020[201][213] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Primary market risk is credit exposure from cash at one bank, with no material interest rate impact expected - Cash and cash equivalents are primarily held in money market funds at one major commercial bank, creating credit risk as deposits exceed government insurance limits[223] - The company does not believe that changes in U.S. interest rates would materially affect its financial condition or results of operations[223] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This section presents the company's audited consolidated financial statements for fiscal 2020 and the independent auditor's unqualified report Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting - The auditor, Ernst & Young LLP, expressed an unqualified opinion on the consolidated financial statements for the three years ended April 30, 2020[228] - The auditor also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of April 30, 2020[229] Consolidated Financial Statements Fiscal 2020 statements show total assets of $107.6 million, liabilities of $65.7 million, and a net loss of $10.5 million Consolidated Balance Sheet Highlights (in thousands) | As of April 30, | 2020 | 2019 | | :--- | :--- | :--- | | Total Current Assets | $59,763 | $51,318 | | Total Assets | $107,620 | $78,395 | | Total Current Liabilities | $44,480 | $23,162 | | Total Liabilities | $65,724 | $25,327 | | Total Stockholders' Equity | $41,896 | $53,068 | Consolidated Statement of Operations Highlights (in thousands) | For Year Ended April 30, | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenues | $59,702 | $53,603 | $53,621 | | Gross Profit (Loss) | $3,932 | $7,224 | $(2,924) | | Operating Loss | $(10,940) | $(5,622) | $(20,638) | | Net Loss | $(10,466) | $(4,215) | $(21,813) | Notes to Consolidated Financial Statements Notes detail accounting policies, customer concentration, lease obligations, the $4.4 million PPP loan, and significant NOL carryforwards - The company adopted new lease accounting standard ASC 842 on May 1, 2019, recognizing right-of-use assets of $23.3 million and lease liabilities of $25.5 million[291] Customers Accounting for ≥10% of Revenue | Customer | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Halozyme Therapeutics, Inc. | 28% | 30% | 55% | | Gilead Sciences, Inc. | 24% | – | – | | Acumen Pharmaceuticals, Inc. | 11% | * | – | | IGM Biosciences, Inc. | 11% | * | – | | Coherus BioSciences, Inc. | 10% | 13% | 22% | | ADC Therapeutics America Inc. | * | 21% | * | - In April 2020, the company received a $4.4 million PPP loan, which it repaid in full in May 2020 after new SBA guidance created uncertainty about qualification[298][299] - As of April 30, 2020, the company had federal and state net operating loss (NOL) carryforwards of approximately $427 million and $277 million, respectively[349] - The company sold its PS-targeting and r84 R&D assets in fiscal 2018 and 2019, respectively, and is eligible for future milestone payments and royalties[362][364][367] ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES The company reported no changes or disagreements with its accountants on financial matters - None[375] ITEM 9A. CONTROLS AND PROCEDURES Management and auditors affirmed the effectiveness of the company's disclosure controls and internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of April 30, 2020[376] - Management concluded that the company's internal control over financial reporting was effective as of April 30, 2020, based on the COSO 2013 framework[380] - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of April 30, 2020[385] ITEM 9B. OTHER INFORMATION The company reported no information for this item - None[392] Part III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information on directors, executive officers, and corporate governance is incorporated by reference from the 2020 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2020 Definitive Proxy Statement[395][396] ITEM 11. EXECUTIVE COMPENSATION Executive compensation information is incorporated by reference from the 2020 Definitive Proxy Statement - Information regarding executive compensation is incorporated by reference from the 2020 Definitive Proxy Statement[397] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS This section details equity compensation plans, showing 3.2 million securities for issuance and 4.9 million shares available for future grants Equity Compensation Plan Information as of April 30, 2020 | Plan Category | Securities to be Issued Upon Exercise (a) | Weighted-Average Exercise Price (b) | Shares Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | 3,193,204 | $6.17 | 3,738,015 | | Employee Stock Purchase Plan approved by stockholders | – | – | 1,148,735 | | Total | 3,203,034 | $6.20 | 4,886,750 | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Related party transactions and director independence information is incorporated by reference from the 2020 Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2020 Definitive Proxy Statement[402] ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Principal accounting fees and services information is incorporated by reference from the 2020 Proxy Statement - Information regarding principal accounting fees and services is incorporated by reference from the 2020 Definitive Proxy Statement[403] Part IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES This section lists all documents filed as part of the Form 10-K, including financial statements and an exhibit index - This item contains the index to the Consolidated Financial Statements and lists all exhibits filed with the Form 10-K[406][407] ITEM 16. FORM 10-K SUMMARY The company provided no summary for this item - None[408]