Avacta Group Plc (LON:AVCT) is a life science company providing high quality and highly specific tools to the biopharmaceutical industry to help in the diagnosis and treatment of humans and animals. The group’s Affimer technology is a revolutionary alternative to the established technology, antibodies, which dominates the drug industry despite its limitations. During 2015 Avacta focused all activities on the commercialisation of Affimers initially via a bespoke service and an on-line catalogue, with a longer-term view to develop its own bio-therapeutics for out-licensing. There is a clear mismatch between the EV of ca.£50m and the long-term potential of Affimers.
► Strategy: To commercialise the Affimer technology, initially by providing Life Scientists with high quality, powerful bespoke tools to accelerate the understanding of disease and improve diagnosis and treatment of humans and animals. Longer-term, Avacta aims to develop its own proprietary therapeutics.
► Commercial opportunity: Antibody technology is the accepted ‘gold standard’ in terms of research, diagnostic and therapeutic tools and have combined commercial markets in excess of $80bn per annum. Affimers may represent an important additional tool in the armoury especially where antibodies have limitations.
► Valuation: Avacta is trading on an EV of ca.£50m, having invested £11.0m to date in its proprietary disruptive technology. There is an under-appreciation in the market value derived from such assets. As the market better understands that Affimers can drive next generation therapies, Avacta’s valuation will correct.
► Risks: Although Affimers have significant advantages over traditional antibody technology, the customer base might take time to realise these advantages and adapt to a new disruptive technology. Avacta is minimising this risk by initially focusing on areas where antibodies are unavailable or perform poorly.
► Investment summary: The enterprise value of Avacta Group Plc does not reflect the value that big pharma is prepared to pay for new technologies and assets. The median up-front paid is US$17m and US$40m for pre-clinical and Phase I assets respectively. These figures were exemplified superbly by the deals that Molecular Partners has secured for its comparable DARPin technology.
