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Drugmaker in Development

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If there’s one Orange County-based company that knows well the joys and heartbreaks of Wall Street, it’s Avid Bioservices Inc.

In 2009, the Tustin-based company, then known as Peregrine Pharmaceuticals, had a $30 share price and $1 billion market cap, as investors bet on it developing a breakthrough cancer drug.

Stage 3 trials failed.

By 2017, its shares were two bucks.

Big and well fed up investors forced the company to sell its drug research assets to focus on contract manufacturing of pharmaceuticals for others. It changed its name and senior leadership. Over the past year, its shares almost doubled.

Then, on March 11, it reported a technical problem with one of its machines affected third-quarter sales.

Shares fell by 25%.

“If we beat expectations, our stock jumps,” interim Chief Executive Rick Hancock told the Business Journal. “If we have a hiccup, as in the most recent quarter, the stock responds accordingly.”

Its shares soared again the last week of March, by about 60% and trading recently at a bit below $5 and a $260 million market cap, about mid-pack for Orange County publicly traded companies, according to last year’s Business Journal list of the largest ones based here.

The new version of that list, initially scheduled for this week’s edition, has been postponed due to the wild downfall of most stocks from mid-February.

For an account of a counter-moving stock, see page 1 for a brief on Masimo Corp. (Nasdaq: MASI). For highlights on what some of OC’s most prominent public firms are doing to battle the coronavirus, see stories on pages 22, 23, 24, and 25.

Coronavirus Effect

Avid is currently in talks with companies looking to make antibodies for projects involving the coronavirus.

Avid is considered an essential business and has kept manufacturing lines open; it hasn’t laid off any employees due to the crisis, though some are working from home.

The company might well benefit from fallout on overseas drug manufacturing of crucial drugs. Hancock said the U.S. government is asking companies with such contracts to study their supply chains closely.

“We’re talking to some people who have government contracts,” Hancock said. “There is a strong directive to bring that manufacturing back domestically. The tailwinds in our industry are very strong.”

Analysts are expecting Avid’s revenue to rise 45% to $81.6 million in fiscal 2021, which begins in May.

Name Changes

The company dates its founding to 1981 as Techniclone International Corp. In 2000, it changed that to Peregrine and began clinical trials on therapeutic agents affecting blood vessels and blood flow for people with cancer among other diseases.

In 2002, the company started a wholly owned subsidiary Avid Bioservices, which provided contract manufacturing and development of biologics for biopharmaceutical and biotech firms.

Pills are swallowed and ingested; biologics, which can’t survive a trip through the stomach, are injected.

“We make the drug substance—the active agent before it’s in its final dosage form,” Hancock said. “We can make any biologic produced by mammalian cells. If you’ve been to a brewpub that makes its own beer, it’s like that.”

Peregrine shares rose earlier this decade on hopes for a cancer drug breakthrough.

Then trials failed.

“The shareholders started to feel the greatest value was in contract manufacturing sector—that was a more reliable business as opposed to getting (FDA) approval” for a new drug, Hancock said.

Peregrine’s assets were sold to a company that several years later is still testing the drug—which Avid is making. If the sold drug is successful, Avid gets “a strong royalty payment,” Hancock said.

Interim CEO

Hancock joined the board in 2018 and took over as interim CEO last May following the departure of Roger Lias.

Hancock has worked in biologic contract manufacturing for three decades, most recently as chief executive of San Diego contract drugmaker Althea Technologies Inc., sold in 2013 to Japan-based Ajinmoto Co. for $175 million.

Hancock is also chairman and executive director at privately held contract manufacturer Argonaut Manufacturing Services Inc. in Carlsbad, which focuses on biotech and life sciences.

Hancock told the Business Journal he prefers the interim CEO title.

“When I first moved into this role, I was thinking it’d be two or three months,” he said. “I’d love to be (CEO) but my home is in San Diego, where I’m involved in early stage companies.”

Hancock said Avid is in the final selection stage for a new CEO who should be named in a few months.

In the meantime, he recruited execs including Richard Richieri, with 25 years industry experience, to be chief operations officer, and Timothy Compton, a senior sales director at contract manufacturer Cambrex Corp., as chief commercial officer.

Avid also beefed up its board, adding Catherine Mackey, a former Pfizer Inc. vice president of global research.

Growth Tract

Avid employs 210 in four buildings near the intersection of Jamboree Road and the Santa Ana (5) Freeway; it touts its team as having more than 15 years of successful inspections by regulators and it’s an approved manufacturer of products marketed in more than 90 countries.

Among its local buildings is a new “state-of-the-art” 84,000-square-foot facility.

“We’re only in half of that,” Chief Financial Officer Dan Hart said.

Avid should outpace the 10% to 15% annual market growth of its industry, Hart said March 19.

The company hasn’t made a profit in years because it was mainly a clinical drug researcher. Once its revenue picks up, he said leverage should improve and profits follow, possibly in fiscal 2021, when analysts expect Avid to break even.

Hancock said pills used to predominate among new medicines coming to market. Today, there’s a profound shift to the biologics where Avid specializes.

“If you’re developing a new biologic, there aren’t many with the commercial track record we have,” Hancock said.

“We love operating in Orange County. It’s a great environment. We intend to grow significantly.”

Peter J. Brennan
Peter J. Brennan
Peter J. Brennan has been a journalist for 40 years. He spent a decade in Latin America covering wars, narcotic traffickers, earthquakes, and business. His resume includes 15 years at Bloomberg News where his headlines and articles sometimes moved the market caps of companies he covered by hundreds of millions of dollars. His articles have been published worldwide, including the New York Times and the Washington Post; he's appeared on CNN, CBC, BBC, and Bloomberg TV. He was awarded a Kiplinger Fellowship at The Ohio State University.

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