What happened

Shares of Avid Bioservices (NASDAQ:CDMO) rose nearly 18% today after the company reported fiscal first-quarter 2019 operating results. The business, which provides contract process development and manufacturing services for biopharma customers, reported quarterly revenue of $12.6 million and a net loss of $0.06 per share.  

Both of those totals easily beat Wall Street expectations, which called for just $9 million in revenue and a net loss of $0.13 per share, according to numbers compiled by Yahoo! Finance. That was based on averaging just two estimates, however, which is likely why, as of 10:31 a.m. EDT on Tuesday, the stock had settled to a 1.4% loss.

A chalkboard drawing of a graph showing growth followed by a sudden and sharp decline.

Image source: Getty Images.

So what

On the Q1 2019 earnings conference call, management reaffirmed fiscal full-year 2019 revenue guidance of $51 million to $55 million. That would put Avid Bioservices on pace to roughly match revenue totals from each of the last two fiscal years, but the numbers fail to demonstrate behind-the-scenes progress.

Avid is working on a more diverse customer portfolio, to replace revenue lost from lower demand by its top two customers. While the plan is working, it makes the company appear to be running in place. But with a new process development lab started up in the most recent quarter and a more solid foundation from which to build upon, Avid could be better positioned to more fully capitalize on its niche opportunity in biopharma services in the next few years.

Now what

Avid Bioservices presents an intriguing long-term opportunity for investors interested in owning a piece of the fast-growing biopharma space, while avoiding the risks presented by clinical trials. However, the business' new focus on process development and manufacturing services -- which it only fully pivoted to in fiscal 2018 -- still has a little way to go before ironing out the kinks.

For instance, lower demand from the top two customers resulted in more idle time in the most recent quarter, which sapped gross margin. As the customer base grows and the business expands, underutilization should become a less-pressing concern in the future. But investors should know that the company's business model will take time, perhaps years, to deliver consistent and profitable growth.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.