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Avacta‘s (LSE: AVCT) a clinical-stage life sciences company, and it caught the attention of investors when the share price shot up in 2020. The big hope is that it will rocket higher again someday.
Back then in the pandemic, the business developed products used for Covid-19 testing. It even managed to sell some of them. That created speculative buying for the stock.
However, even the firm’s Covid test kits weren’t enough to create overall profits for the enterprise.
Getting out of diagnostics
In September, the firm said it’s looking for a buyer for its diagnostics division. If successful, it could gain some much-needed capital. But at the same time it will kill off the revenue stream from that division.
Meanwhile, the share price chart mirrors the changing fortunes of the company. With the stock in the ballpark of 45p, it’s down around 65% this year.
The main ongoing focus of Avacta’s efforts is the development of cancer therapies. The company describes its pre|CISION technology as a “proprietary warhead delivery system”.
Operational progress
Given the large number of cancer sufferers, a war on the disease seems like an attractive proposition. Avacta’s trying to develop treatments to target the tumours themselves, while sparing harmful effects on normal tissues. Perhaps that area of operations can produce a future top-selling product and relaunch the share price.
The company delivered an update on progress with September’s interim results report. Chairman Shaun Chilton said the firm’s prioritising further investments in therapeutics, including the “acceleration” of its AVA6000 clinical trial enrolment.
AVA6000 showed a “highly encouraging” tolerability profile with “robust” initial efficacy signals in both dose-escalation arms of its Phase 1a trial.
The directors are “encouraged” by the potential of the “innovative” medicines in the Avacta pipeline. The firm’s AVA6000, AVA6103, and AVA7100 programmes are “highly differentiated pipeline assets, addressing large markets”.
Big costs, small revenues
Nevertheless, early-stage development’s an expensive and cash-consuming game. Loss-making companies like this tend to keep operations going by issuing more shares and raising extra money from shareholders. For example, Avacta did a fundraise in March to raise just over £31m.
Every issue of new shares dilutes existing holders. So if a drug development phase lasts too long, there can sometimes be little benefit left for the longest and most patient investors. That’s even if the business does eventually start earning decent money.
On top of that, treatments can fail even in the later stages of development. So those uncertainties are the biggest risks for Avacta shareholders today.
Nevertheless, the company’s been progressing its stable of potential new treatments and every passing week may take it closer to commercial success. So Avacta shares could recover at some point. But there’s a lot of risk for shareholders to carry in the meantime.
