An ambitious growth strategy for Avacta Group
“…the Avacta share price is currently flying high at around 120p at the time of writing, up from 40p in March, taking the company’s market cap to around £300m. That price will surely go higher if Phase I trials conclude successfully…”
Avacta Life Sciences (AIM: AVCT), a UK-based clinical stage oncology company developing new cancer therapies, continues to move its AVA6000 treatment towards completion of Phase I trials, a crucial indicator of the market potential of the company’s proprietary immunotherapy platforms.
AVCT is developing cancer immunotherapies and diagnostics based on two self-developed platforms – Affimer and pre|CISION. Affimer activates a human protein to offer a safer alternative to current treatments based on the use of antibodies that, requiring prior testing on animal immune systems, are not always well tolerated by humans. The pre|CISION platform selectively releases active chemotherapy in tumour tissue to limit the systemic exposure that causes damage to healthy tissues.
AVCT comprises Therapeutics and Diagnostics divisions. The primary focus of the Therapeutics Division is the development of AVA6000, a possible alternative to industry-standard treatments such as Doxorubicin, a generic chemotherapy for which the broader market is expected to grow to nearly $1.4bn in the next two years. Despite this pressing demand, Doxorubicin carries a risk of toxicity for some patients. AVA6000 is a cleaner treatment, released into the patient’s system by means of the triggering of an enzyme targeted by the pre|CISION platform.
The drug is currently at Phase I in the three-phase clinical trial process. This round of testing involves administering ascending doses of AVA6000 to ‘cohorts’ of patients with locally advanced or metastatic selected solid tumours to determine the maximum tolerated dose and clear the way for Phase II trials. The first dose of 80 mg/m2 was administered to the first cohort of patients last August; the fourth, of 200mg/m2, is being administered during Q4 2022. An Investigational New Drug (IND) application for AVA6000’s trial in the US has been approved by the US Food and Drug Administration (FDA). This September the FDA granted it Orphan Drug Designation (ODD) for treatment of soft tissue sarcoma, a rare mesenchymal malignancy which accounts for less than 1pc of all adult tumours, but which kills more than five thousand US citizens each year. ODD status gives AVCT development incentives including tax credits and the prospect of seven years of market exclusivity in the US.
AVCT believes that as AVA6000 advances through the trial process an ever stronger case can be made for pre|CISION as a groundbreaking chemotherapy, opening the way for ‘a pipeline of proprietary, potentially safer, next generation chemotherapies with significant clinical and commercial potential in a chemotherapy market that is expected to grow to $56 billion by 2024.’ The company’s next most advanced pre|CISION generated candidate is AVA3996, targeted at a global proteasome inhibitors’ market expected to be worth $2.3bn by 2026. Half of that market share is currently held by the established Velcade drug, which AVCT suggests has ‘significant side effects such as peripheral neuropathy which has limited its approval, principally in treating multiple myeloma.’ The company argues that potentially safer proteasome inhibitors such as AVA3996 could win significant market share for the treatment of multiple myeloma and solid tumours such as pancreatic cancer. Earlier this year AVA3996 was formally selected as a candidate for pre-clinical development with the aim of a Clinical Trial Authorisation and/or Investigational New Drug filing in 2023 and dosing of the first patient as soon as possible thereafter.
AVCT has entered several commercial partnerships exploring possible applications of the Affimer and pre|CISION platforms. The company is collaborating with LG Chem Life Sciences to develop a novel immune inhibitor, PD-L1, and has granted LG Chem rights to develop other products with the platforms that entitle AVCT to milestone payments of up to $55m, and royalties from each product. This summer LG Chem paid $2m to renew its rights under the ongoing collaboration. AVCT also has a joint venture with South Korean company Daewoong Pharmaceuticals to develop mesenchymal stem cell therapies, and a license agreement with POINT Biopharma for the development of a tumour-activated drug for which AVCT would receive a $9.5m payment, and up to $8m for each subsequent product.
In addition to developing treatments and collaborations through the company’s Therapeutics Division, AVCT has established a blue-skies Diagnostics Division dedicated to the discovery of cutting edge In vitro diagnostics (IVD) products. Now an ISO13485 accredited product business, the Division is best known for the AffiDX SARS-CoV-2 antigen lateral flow test. AVCT paused production of the test earlier this year to ensure it is effective against Covid’s Omicron variant, but is researching a range of alternative products covering respiratory, infectious and cardiovascular diseases, cancer, and general health and well-being treatments.
The company is working to grow the Division through an aggressive M&A strategy, seeking to build a research unit with the firepower to take a lead position in ‘fragmented’ EU and UK markets. AVCT took a significant step towards that objective this autumn, acquiring Launch Diagnostics Holdings for an upfront £24m and an earn-out based on future business performance capped at £13m. Launch markets more than four thousand products serving more than 500 customers in both the public and private sectors, and operates on multi-year contracts with 95pc repeat business. AVCT, which will retain the Launch brand by running it as a separate business, will pursue growth opportunities including the cross-selling of tests for a wide range of pathogens into the recently expanded installed base of PCR equipment post-COVID-19, including legionella, viral meningitis, giardia, cryptosporidium, and through expansion into Germany and North Africa. AVCT foresees an enlarged Diagnostics Division that ‘would be an IVD developer and distributor with a broad range of over 4,000 products covering immuno-diagnostics and molecular diagnostics for professional use, with potential for further growth and value creation.’
Most of AVCT’s revenue is currently generated from its Therapeutics Division, which earned £5.44m in H1 2022 (H1 2021: £1.43m), the LG Chem and AffyXell collaborations earning £1.48m and £3.7m respectively. Revenue from the Diagnostics Division was £0.07m (H1 2021: £0.09m). The company’s operating loss was £9.65m (H1 2021: £11.33m), and the reported loss from continuing operations after taxation £8.99m (H1 2021: £10.18m). AVCT ended the period with £17.02m net cash and short-term deposits (H1 2021: £36.97m), outflows attributed to operations and working capital movements, as well as investing activities. AVCT’s fundraise in support of the Launch acquisition took in a total of £64m, which will be used to support the company’s wider business as well as the purchase.
AVCT was picked out as one to watch in the recent Investors’ Chronicle AIM 100 showcase, but as the magazine noted, a company ‘counting on the success of a first-stage drug’ can look like ‘a bit of a risky prospect.’ The FDA estimates that around 70pc of drugs make it through Phase I trials, but only a third succeed in moving from Phase II to Phase III.
As AVCT acknowledges, forthcoming clinical data from the Phase I study of AVA6000 will be ‘a significant near-term value driver for the Group’, a ‘major value inflection point’ important not only for the continued development of the drug, but also ‘validation of the pre|CISION mechanism of action, and therefore the platform as a whole’, opening the prospect of a ‘valuable, pipeline of future pre|CISION chemotherapy products’. AVCT’s share price is currently flying high at around 120p at the time of writing, up from 40p in March, taking the company’s market cap to around £300m. That price will surely go higher if Phase I trials conclude successfully. But, though it would be unfair to characterise AVCT as a one-horse company, much depends on the performance of this particular runner.