Avid Bioservices to Be Acquired in $1.1 Billion All-Cash Deal by GHO and Ampersand

On November 6, 2024, it was announced that GHO Capital Partners LLP (“GHO”) and Ampersand Capital Partners (“Ampersand”) have entered into a definitive merger agreement with CDMO company Avid Bioservices, Inc. (NASDAQ: CDMO) (“Avid Bioservices”), pursuant to which Avid Bioservices will be acquired by funds managed by GHO and Ampersand in an all-cash transaction.

 

Under the terms of the merger agreement, GHO and Ampersand will acquire all outstanding shares held by Avid shareholders for $12.50 per share in cash. The acquisition price represents a 13.8% premium over Avid’s closing price of $10.98 on November 6, 2024, local time (the last full trading day prior to the transaction announcement), and a 21.9% premium over the company’s 20-day volume-weighted average share price as of November 6, 2024. The transaction implies an enterprise value of approximately $1.1 billion (approximately RMB 7.8 billion), equivalent to 6.3 times Avid’s projected revenue for fiscal year 2025.

 

Avid Bioservices provides process development and current Good Manufacturing Practice (cGMP) clinical and commercial manufacturing services for biologics to the biotechnology and biopharmaceutical industries. The company’s offerings include clinical and commercial active pharmaceutical ingredient (API) manufacturing, bulk packaging, release and stability testing, as well as regulatory submissions and support. Additionally, Avid Bioservices delivers a range of process development services, such as upstream and downstream process development and optimization, analytical method development, cell line development, testing, and characterization.

 

Alan MacKay and Mike Mortimer, Managing Partners at GHO Capital, stated that GHO’s expertise and experience would continue to support Avid’s management team in driving forward development and facilitating the efficient, high-quality implementation of innovative therapies. Both parties recognized that Avid Bioservices is currently operating in a high-growth market, manufacturing complex biologics for leading pharmaceutical and biotechnology innovators during both clinical and commercial stages. The collaboration is expected to expand product offerings, talent investment, and geographic reach, thereby further unlocking the company’s potential.

The Rise and Hidden Concerns of the “Water Seller”

Avid Bioservices' history dates back to the 1990s.

 

In 1993, Peregrine Pharmaceuticals was established and commenced the development and production of biologics. The company’s founding coincided with a boom in overseas biopharmaceutical technology and a surge in demand for consumer pharmaceuticals, driving continuous business growth. In 1997, as the company expanded its operations, it further strengthened its production capacity by expanding its Franklin manufacturing facility and enhancing both internal processes and customer service. In 2002, Avid Bioservices was founded as a wholly-owned subsidiary of Peregrine Pharmaceuticals, and leveraged its state-of-the-art facilities to secure its first contract manufacturing client the following year.

 

In 2005, the Company received its first FDA commercial approval; in 2012, it obtained its first EMA commercial approval; and in 2016, its state-of-the-art commercial manufacturing facility in Myford, Irvine, California, became operational. In 2018, Avid Bioservices was officially established and listed on NASDAQ as a specialized, independent CDMO; it also opened an advanced new process development laboratory in 2019. In 2021, Avid Bioservices expanded its business into viral vector development and manufacturing, and launched analytical development and process development suites for viral vectors the following year.

 

In October 2023, Avid Bioservices announced the completion of its new world-class cell and gene therapy (hereinafter referred to as “CGT”) development and manufacturing facility. With the completion of this latest and final expansion project, Avid Bioservices estimates that the combined facilities now have a potential total revenue-generating capacity of approximately $400 million per year.

 

Reportedly, this 53,000-square-foot CGT development and manufacturing facility, located in Orange County, California—just five miles from Avid Bioservices’ mammalian cell development and manufacturing operations—will support the entire process from early-stage development to commercial manufacturing. The recently completed manufacturing suite complements the analytical and process development laboratories within the CGT facility. Avid Bioservices’ CGT plant will be capable of producing suspension culture batches of up to 3,000 liters, as well as adherent cultures using fixed-bed reactors. Furthermore, the manufacturing suite is designed to produce drug products using state-of-the-art filling and capping machinery. Additionally, the facility features over 6,000 square feet of dedicated quality control laboratory space to support clinical and commercial CGT products.

 

It can be said that Avid Bioservices has been closely aligned with market development since its inception. In the early stages, the company actively enhanced its hardware infrastructure; in the mid-to-late stages (including after its IPO), it kept pace with the development trends of the biopharmaceutical industry and seized market opportunities to flexibly expand its business scope.

 

It is worth noting that CDMOs are institutions that provide customized R&D and manufacturing services to pharmaceutical and biotechnology companies, including process development and preparation for medicines—particularly innovative drugs—process optimization and scale-up production, regulatory filing and validation batch production, as well as commercial-scale manufacturing. During upswing cycles, the biomedical industry, as a new-era goldmine, presents numerous opportunities, enabling CDMOs to achieve rapid growth alongside industrial development. From 2017 to 2021, the global CDMO market size grew from $39.4 billion to $63.2 billion, representing a compound annual growth rate (CAGR) of 12.5%. Avid Bioservices’ expansion coincided precisely with this wave of growth.

 

However, as pharmaceutical companies face mounting cash flow pressures, this strain has also spilled over into the increasingly competitive CDMO sector. Since 2023, even CDMOs, often regarded as “shovel sellers” in the industry gold rush, have not been spared. Consequently, Avid Bioservices, despite keeping pace with industry trends, announced an 11% decline in profits in its latest financial report.

Bucking the Trend: No Capacity Anxiety for Now

To some extent, public sentiment toward CDMOs in 2024 has been less than positive. In recent years, the CDMO sector has undergone expansion in global market size, shifts in geographic distribution, upgrades in business models, and iterations of new technologies. Now, facing a crisis of overcapacity compounded by regional development dynamics, the CDMO industry stands at a tipping point between boom and bust, seeking new pathways forward.

 

At the start of the year, news that CDMO giant Catalent was being acquired drew significant industry attention, with its buyer being Novo Nordisk, which has gained considerable momentum in recent years. Novo Holdings, the controlling shareholder of Novo Nordisk, agreed to acquire Catalent for $16.5 billion in cash. Through this acquisition, the Danish pharmaceutical giant directly secured “off-the-shelf” capacity to fill its production gaps, while Catalent found a stable and strategic partner in Novo Nordisk.

 

Furthermore, global CDMO giant Lonza has decided to shut down its biotechnology plant in the Sino-Singapore Guangzhou Knowledge City within the Guangzhou Development District. This facility was Lonza’s third plant in China and the ninth biotechnology plant in its global network, with a total investment exceeding USD 100 million. Lonza’s rationale was straightforward: a lack of orders. Although the closure of these two plants resulted in CHF 183 million in asset impairment losses and an additional CHF 50 million in restructuring-related costs for Lonza, these financial impacts did not deter the company from proceeding with the shutdown.

 

As a global leader in pharmaceutical CDMO, Lonza’s decision to shut down its Guangzhou Knowledge City plant reflects numerous issues. It is not only industry giants like Lonza that are affected; other foreign-invested CDMOs are also facing declining performance.

 

Like Catalent, Avid Bioservices was also acquired by a consortium of investment firms; however, it currently faces no performance-related concerns. Financial reports indicate that as of July 31, 2024, Avid Bioservices had a backlog of $219 million, representing a 16% year-over-year increase, with the company expecting to recognize revenue from this substantial backlog over the next five fiscal quarters. Furthermore, the acquirers, GHO and Ampersand, have expressed strong confidence in Avid Bioservices’ production capacity potential.

 

Avid Bioservices’ recent growth trajectory is reminiscent of Samsung Biologics. As a representative of the new wave of CDMOs in the Asian market, Samsung Biologics has quietly reshaped the global landscape. In recent years, its aggressive expansion has left a strong impression on the market: both revenue and net profit have hit record highs, making it the first biotechnology company in South Korea’s history to achieve annual profits exceeding 1 trillion Korean won.

 

Biopharmaceutical CDMOs that grew up alongside it include Fujifilm in Japan, but the two have chosen different expansion strategies. Currently, Fujifilm is more inclined to build its CDMO “foundation” in the European and American markets.

 

Overall, Avid Bioservices combines the advantages of both approaches: securing large contracts, rapidly expanding production capacity, and pursuing growth through mergers and acquisitions. It has seized the development opportunities presented by the CDMO sector amid the boom in innovative drugs, turning them into a “powerful tool” for profitability. As for establishing domestic manufacturing facilities, this has been a strategy consistently implemented by Avid Bioservices since its inception.

 

Nevertheless, Avid Bioservices’ agreement to sell may also be a precautionary measure. While the backlog of orders might help Avid Bioservices navigate through 2025, its performance thereafter remains uncertain. Avid Bioservices officially stated that this transaction provides significant, immediate, and certain cash value to the company, possibly preparing it for future competitive markets. As CDMO companies in South Korea and India become increasingly competitive, conserving resources, strengthening control over technology and quality, and accumulating projects that can truly withstand validation are key to moving forward.