Is Avid Bioservices (CDMO) a Worthy Investment Pick?

Laughing Water Capital, an investment management firm, published its second-quarter 2022 investor letter – a copy of which can be downloaded here. For Q2 2022 Class A interests in Laughing Water Capital returned approximately -19.4%, bringing our year-to-date returns to approximately -29.5%. The SP500 and R2000 returned -16.1% and -17.2% for the quarter, bringing year-to-date returns to -20.0% and -23.4% respectively. Go over the fund’s top 5 positions to have a glimpse of its finest picks for 2022.

In its Q2 2022 investor letter, Laughing Water Capital mentioned Avid Bioservices, Inc. (NASDAQ:CDMO) and explained its insights for the company. Founded in 1981, Avid Bioservices, Inc. (NASDAQ:CDMO) is a Tustin, California-based biotechnology company with a $1.1 billion market capitalization. Avid Bioservices, Inc. (NASDAQ:CDMO) delivered a -35.20% return since the beginning of the year, while its 12-month returns are down by -21.76%. The stock closed at $18.91 per share on August 17, 2022.

Here is what Laughing Water Capital has to say about Avid Bioservices, Inc. (NASDAQ:CDMO) in its Q2 2022 investor letter:

How Cheap is Cheap Enough?

Consider the case of Avid Bioservices (NASDAQ:CDMO), a large molecule, small batch Contract Drug Manufacturing Organization that will be familiar to all but our newest partners, as we owned shares from 1H 2018 until all but exiting our position in the low $30s in Q4 of 2021. Since that time, shares have declined precipitously as the company is both a “growth” stock and in the S&P Biotech ETF (XBI), which has declined ~36% YTD to quarter end. However, in my view Avid Bio is a baby with the bathwater, and we once again made Avid Bioservices a large position during the quarter.

First, unlike most “growth” stocks, Avid Bioservices is not a “disruptor.” You don’t have to make any blind assumptions about total addressable market (TAM), customer acquisition costs (CAC), or churn. There is very little risk of “garbage in, garbage out” when modeling Avid’s future. Rather, Avid’s assumed growth is tied to building additional manufacturing capacity. In my view, it is a much easier task to understand the dynamics of building an additional manufacturing facility than it is to understand the dynamics of alleged TAM, potential CAC, and unknown churn.

Second, unlike most biotech stocks, Avid is a real business, not a binary bet on whether or not a drug will meet its hoped-for end state. Lastly, and most importantly, Avid Bio has one characteristic that staunchly separates it from other high flying growth stocks and biotech stocks that have been punished by the market: it is set to gush cash in the not-too-distant future.”


Our calculations show that Avid Bioservices, Inc. (NASDAQ:CDMO) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Avid Bioservices, Inc. (NASDAQ:CDMO) was in 15 hedge fund portfolios at the end of the second quarter of 2022, compared to 14 funds in the previous quarter. Avid Bioservices, Inc. (NASDAQ:CDMO) delivered a 62.60% return in the past 3 months.

In February 2022, we also shared another hedge fund’s views on Avid Bioservices, Inc. (NASDAQ:CDMO) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q2 page.

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