Avacta – Value inflection point #AVCT

Avacta – Value inflection point #AVCT

At the time of writing, the author has a long position in AVCT.

Avacta is an AIM-listed drugs development company (share price 19.75p, market cap £35 million). It focuses on developing cancer immunotherapies (harnessing the power of the body’s own immune system to fight cancer) that combine its two proprietary platforms:

  • Affirmer biotherapeutics.
  • pre|CISION tumour targeted chemotherapy.

The Affirmer platform is a drugs delivery platform which is cheaper and easier to use than traditional platforms:

(Source: Avacta)

Avacta’s proprietary pre|CISIONTM is a chemotherapy platform (to destroy rapidly growing cells in the body) that releases the active drug only in the tumour. Chemotherapy typically attacks not just cancerous cells but also other cells – therefore patients cannot use them too often. By targeting the tumour directly, it’s hoped that the dosage can be increased and side effects minimised.

Avacta expects to take its first drug, a targeted form of the standard-of-care Doxorubicin, into the clinic in the middle of 2020.

(Source: Avacta. NB: clinic now expected in the middle of 2020, not Q1).

Proactive’s research analyst Ed Stacy explains both platforms (1 minute  28 seconds):

(Source: Proactive)

Investment Thesis

Most biotech stocks have three things in common – they lose money, eat shareholder cash and the share price typically goes in one direction – down! Avacta is no different so far.

There was a 100 to 1 share consolidation in early 2016:

(Source: Google)

Reasons I like it:

  1. Fully funded for 2020 – Avacta is fully funded for its 2020 work programme following a placing at 15 pence in November.
  2. Transformational potential – if Avacta’s clinical trial is successful, its value could multiply 10–100x, given the potential scale of collaborations. The upside cannot be understated!
  3. Quality partnerships – Avacta has multiple partnerships which validates their platforms including with LG Chem which has milestone payments worth up to $310 million.
  4. Losses Reducing – Avacta’s trading update showed revenues had grown by 100%.
  5. Massive trading volumes – I believe that any placing overhang could be cleared quickly given the large trading volumes. Shares could re-rate in the coming months after the large volumes seen recently:

(Source: Tradingview)

Risks
  1. Clinical Trials failure – there is no guarantee that Avacta’s clinical trials will be successful.
  2. Dilution risk – Avacta is burning cash faster than it comes in, so there is the potential for further equity dilution.

I would place Avacta shares firmly in the high risk, high reward end of the spectrum. On the flip side, if Avacta is to be successful the upside is many many multiples. This is the type of risk/reward scenario I’m happy to take. I have about 3% of my portfolio invested in Avacta – if successful, it could have a significant impact on my future financial freedom!

Edit: the company has just announced a successful proof of concept for a new cancer drug, combining their two platforms.

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