Avacta Group (LON:AVCT) 12-month results to July 2019 highlight ongoing momentum, as evidenced by three new partnerships (LG Chem, ADC Therapeutics and New England Biolabs), advancement of its pipeline towards the clinic and robust revenue growth in its research and diagnostic reagents division. Avacta recently announced a multi-target (focused on cancer) collaboration and licensing agreement with ADC Therapeutics to develop Affimer drug conjugates, providing further validation for Avacta’s technology. Avacta’s pro-doxorubicin compound AVA6000 (utilising Tufts’ linker technology) is expected to start clinical trials in Q220, while lead Affimer AVA004 (PD-L1) is shortly expected to complete cell line development. We value Avacta at £47m or 40p/share.
New partnerships highlight strong momentum
In the partnership with ADC, Avacta will select the Affimers, after which ADC will be responsible for all preclinical research in relation to the creation of Affimer drug conjugates and subsequent clinical development. As all R&D costs are covered by ADC, Avacta benefits from limited upfront financial risk, with potential upside from the option on each target that could provide long-term milestones and royalties. This partnership adds to multiple deals signed in the past 12 months, including a notable collaboration with LG Chem worth more than $300m (plus royalties) to develop a range of therapeutic Affimers. Also in H119, Moderna exercised its option on an Affimer developed in partnership with Avacta.
Assets hitting milestones on the way to the clinic
Avacta’s pro-doxorubicin compound AVA6000 (utilising Tufts’ FAPα cleavable linker) has demonstrated positive data in preclinical models that support its path to the clinic. Avacta plans to submit an IND (to treat soft tissue sarcomas) by end of Q120 to begin patient dosing (n=15) in Q220. Initial data are currently forecast for the second half of 2020. Cell line development of AVA004 (PD-L1 Affimer) is expected to complete shortly while pre-clinical development and IND-enabling studies will be paused while the company focuses its resources on rapidly moving AVA6000 into the clinic. AVA004/100, which combines AVA004, FAPα cleavable linker and IDASH toxin, is set to generate first animal efficacy data by year end.
Valuation: £47m or 40p/share
We value Avacta Group at £47m (or 40p/share) vs £51m (or 44p/share) previously. The reduction is due to lower net cash. In addition, we have rolled forward our model and updated for FX. We do not currently include in our valuation the proposed share issue of 59.8m shares at 15p/share, which should raise gross proceeds of up to £9m. The share issue will be voted on at the upcoming AGM on 4 November.
