Pharmaceutical firm Avacta (LSE:AVCT) has released two updates in quick succession recently.
Firstly, the company released a trading update on 23 January, which saw it reveal that revenues had risen 100% to £5.5 million. This was ahead of expectations, meaning Avacta is growing its top line faster than expected. OK, good. But will the firm need to whip out the begging bowl?
Well, no. We are told that Avacta’s cash position sat at £8.7 million as at 31 December 2019 which was also ahead of market forecasts. Again, this is good – we know that the business is funded for most of 2020 at least at its current run rate. We also know that revenues are growing quickly, so it is possible that the organisation can go through all of 2020 without raising further.
Although this could obviously present issues over a longer time frame – I do not see an immediate risk.
Avacta has allowed itself to have a proper runway of value creation, building up its operations before any financing is required.
The update on 28 January saw the company reveal successful initial proof-of-concept for its new proprietary new class of drug conjugate, “TMAC”, in a preclinical animal model of cancer.
I am not entirely sure what that means, but luckily the company explains. TMAC contains an I-DASH drug warhead (wow!) which is able to focus on the tumour and not the blood.
This is potentially big news for the company, as the drug showed a significant reduction in the rate of tumour growth compared for Bavencio – a similar treatment developed by Merck and Pfizer.
In any case, TMAC early stage – but the company has received significant interest already in the TMAC concept, so this news of superior efficacy and targeting of the warhead is definitely a bonus.
How does the chart look?
All of this sounds very nice and dandy, but in the end it is the price action that matters. Here we can see Avacta’s chart from the end of 2018 to now.
The stock rose in a nice rally from the LG Chem RNS in December 2018, yet spent most of the year falling from the heights of near 50p to near 16p.
The company raised £9 million at 15p in October, and so we have seen some of that stock likely being sold down. Currently finnCap are working an overhang, so once that is clear I believe Avacta will continue on its upward trend.
In 2020, volume has been consistently higher. That tells us that people want in. With the stock now above all of its moving averages, things are looking bullish.
I am in at 19p, and intend to average up here.
One thing that Avacta’s management team has achieved is getting into bed with the right backers. Look at the following from the firm’s partnership with LG Chem:
Avacta will also receive royalties on any future product sales and LG Chem will cover Avacta’s costs of research and development associated with the collaboration. Avacta may receive an additional $130 million in option fees and milestone payments should LG elect to exercise their options for additional targets.
Likewise, check this from the firm’s partnership with Daewoong:
Avacta will develop Affimer proteins against several undisclosed targets which will be transferred to the joint venture to be incorporated into MSCs. Avacta’s research and development costs will be fully covered by the joint venture which is funded by Daewoong
There is a lot of upside for the stock – and whilst it’s still speculative – the cash position of the company allows management to have a good swing of the bat and unlock some value.
Author Michael Taylor’s website www.shiftingshares.com contains a number of tutorials on how to trade and invest as well as his free book – ‘How to Make Six Figures in Stocks’.