As part of the ShareBuyers’ going for growth series, we take a look into the growth prospects of Avacta (LON: AVCT), a specialist developer of innovative cancer therapies and diagnostics tools that has been among the best performers across the London markets this year with a gain of over 800% since the start the year.
With its diagnostics division preparing to launch a game-changing saliva-based COVID-19 rapid antigen test that can easily be used at home and read by eye – its surging share price comes as little surprise due to the immense potential to easily support frequent mass testing with the minimal of fuss and unlock the wider economy.
Find out why Avacta Chief Executive Officer Alastair Smith feels that the business is on its way to becoming a multi-billion dollar life sciences company that can compete on the world stage with the likes of Roche-Genentech and find out how he’d pitch the business to legendary investor Warren Buffett!
Firstly, can you please tell us a bit about Avacta and its value proposition?
Avacta is developing novel cancer immunotherapies and powerful diagnostic tests, using its two proprietary platforms – Affimer® binding proteins and pre|CISIONTM tumour-targeted chemotherapy. With this approach, the Company aims to address the lack of a durable response to current immunotherapies experienced by most patients and to deliver powerful diagnostic tests for a range of conditions.
Affimer binding proteins can be generated quickly to bind to drug targets in order to develop novel therapeutic agents, and to biomarkers of disease allowing a range of diagnostic tests to be developed. Affimer proteins have technical and commercial benefits over antibodies but essentially they can be thought of as simple, robust, powerful and low cost alternatives to antibodies that can be applied in therapeutic and diagnostic markets worth in excess of $150bn.
Avacta’s proprietary pre|CISION targeted chemotherapy platform releases the active drug only in the tumour, thereby reducing systemic exposure and improving the overall safety and therapeutic potential of these powerful anti-cancer treatments. Avacta is developing these targeted chemotherapies with the longer-term goal of linking them with Affimer immunotherapies as combined treatments and drug conjugates. In simple terms, pre|CISION drugs aim to provide patients with chemotherapy without the side effects.
Our mission is to help shape the future of medicine by developing safe and efficacious drugs and powerful diagnostic tools based on these platforms.
The current climate is presenting challenge and opportunity – how has this applied to Avacta?
The requirement for social distancing has certainly made working conditions more challenging but the business has been able to adapt. Our lab staff have been split into teams working one week in and one week out of the lab to allow us to maintain social distancing. Even with this reduced capacity we have continued to make progress in our therapeutic programmes and have been able to generate Affimer reagents quickly for the rapid SARS-CoV-2 diagnostic tests which are being developed. This is a reflection of the Avacta team’s commitment and hard work, despite the issues caused by the pandemic.
Another challenge has been that many clinical trials in the UK have been halted due to the pressure on clinicians and hospitals during the pandemic, and the regulators are prioritising submissions related to COVID-19 therapies. This has impacted our intended timelines to progress to the clinic but we expect to make the regulatory submission in the UK for AVA6000, the first of the pre|CISION pro-drugs, by the end of 2020 and be dosing first patients early in 2021.
The Affimer platform is well placed to respond to the desperate need for COVID-19 testing that currently exists in the world. Highly-specific Affimer reagents have been developed in a matter of weeks to detect the SARS-CoV-2 spike protein and these are now being developed into a range of rapid point-of-care and laboratory tests in-house and with partners. We announced in April 2020 our partnership with Cytiva to develop and manufacture a test capable of diagnosing SARS-CoV-2 infection in minutes using a respiratory sample, such as saliva. We are also working with US company Adeptrix to develop a laboratory test for COVID-19 using mass spectrometry that is already installed in many hospitals but currently unused for COVID testing. We have also developed a laboratory ELISA test that we are launching as a research tool to support scientists world-wide in the fight against the coronavirus. Each of these provides a commercial opportunity, but the successful launch of a COVID-19 rapid antigen test is the most significant of these.
We believe there is likely to be a long-term need for a very high volume of COVID-19 testing to support the global process of controlling the disease, getting healthy people back to work and rebuilding economies. In the UK alone, the demand for antigen testing in the community could be as high as 100 million tests per month in the medium-term. Through our partnerships, we are looking to supply beyond just the UK market. There is also likely to be a long-term need for antigen testing as the disease will remain in some societies for many years.
This wealth of opportunity related to COVID testing has attracted significant interest from investors which has undoubtedly supported Avacta’s share price and growth, and allowed the Company to raise significant funding during 2020 to support the diagnostic developments, drive our first drugs into the clinic and expand the therapeutic pipeline.
Growth catalysts are crucial to business growth – what do you believe yours are?
Within the therapeutic division, the phase I clinical trial of the first pre|CISION pro-drug is a significant value driver. If we recapitulate in humans the excellent results that we have seen in preclinical models, then not only will we have created a much safer form of a very effective chemotherapy called Doxorubicin, but we will have demonstrated that the pre|CISION chemistry works in humans. pre|CISION can then be applied to a large number of other chemotherapies to improve their safety and efficacy creating a pipeline of powerful new anti-cancer drugs.
The transformation of Avacta Life Sciences from a pre-clinical to a clinical stage biotech is a major step forward in itself and we are delighted to have recently announced the appointment of Neil Bell as Chief Development Officer, responsible for the late stage pre-clinical and early clinical development of the Company’s pipeline of pre|CISION pro-drugs and Affimer immunotherapies. Neil has vast experience in the drug development industry and his appointment will be highly beneficial in driving our innovative cancer therapies into the clinic and towards commercialisation.
The expansion of the broader therapeutic pipeline is also a major value driver. Avacta is well positioned as a platform company to expand its pipeline and is in the early stages of development of three more pre|CISION pro-drugs, two bispecific Affimer immunotherapies and a novel immuno-active drug conjugate that combines the two platforms in a single drug molecule.
Beyond the COVID opportunity, the diagnostics division continues to develop a pipeline of diagnostic tests with partners and in-house. A key objective for this division is agreement of licensing deals with some of these partners to validate the business model and create the potential for a recurring royalty revenue stream from third party product sales. Each of these license deals is an important growth catalyst.
What are the biggest headwinds you foresee to achieving growth in the coming months and years? How will you tackle them?
For any biotech business, especially in the UK, capital availability is usually the most serious factor limiting progress that must be addressed. However, Avacta is fortunate in having a strong balance sheet with over £50m and is well funded for several years to deliver on the pipeline of cancer therapies and diagnostics that it is developing based on its proprietary platforms. In this regard, the Avacta business has been significantly de-risked by the recent placing in June 2020.
We still face challenges due to the coronavirus pandemic as all businesses are. Most significant is the need to maintain social distancing at work which is difficult for a laboratory-based business. However, we have taken on new space at both our UK sites and we are in the process of expanding our laboratories so that we can get everyone back into work within a few months. COVID-19 will be with us for the foreseeable future and we therefore expect to continue to have to deal with limitations on travel but we have adapted to on-line meetings and it is likely that we will adopt some of these new ways of working permanently.
The business naturally faces the challenges posed by science; the biology of disease is heterogeneous and complex, effective therapeutic and diagnostic solutions are non-trivial and there is always the risk of delay when science needs to be tamed. This can translate into missed milestones and, since the perception of progress in a biotech is heavily milestone driven, delays are a significant headwind. However, Avacta has a world-class team of scientists and business leaders with a wealth of experience and we continue to add to that team in order to meet future challenges and make rapid progress when time is of the essence.
Imagine you find yourself in a lift with Warren Buffett. What would be your ‘elevator pitch’ to summarise why he should invest in Avacta?
Avacta’s proprietary technology platforms are addressing unmet needs in healthcare markets worth over $150bn.
Avacta is in a position to help shape the future of medicine through powerful new anti-cancer treatments and diagnostics. With appropriate scale-up capital, Avacta will become a multi-billion-dollar life sciences company competing globally with the likes of Roche-Genentech, Thermo-Fisher and Abbott.
The Company is at the key value inflection point as it enters the clinic with its first cancer therapy and brings its first diagnostic product for rapid COVID-19 testing to market. Now is the time to invest in this IP-rich, ambitious company which is set to change the way diseases are diagnosed and treated.
Please note: this discussion with Alastair Smith CEO of Avacta forms part of the ShareBuyers’ going for growth series – helping companies with high growth potential to share their story. It is not a recommendation to buy or sell shares in AVCT.