AVACTA FY20 Results Point the way to a Valuation Inflection in FY21

Avacta Group plc (AVCT FOLLOW), has released its FY20 Final Results for the 12 month period to 31 December  2020. The significant operational progress achieved in both the Diagnostics and Therapeutics divisions have seen the Company demonstrate the commercial potential of its scalable, rapid coronavirus test, a major valuation reflection point for the Company.

FY20 Operating highlights

COVID Diagnostics

During the period, Avacta made substantial progress in the development of its Affimer® based, SARS-CoV-2 antigen lateral flow test with recent Laboratory studies revealing it may be the most sensitive S1 spike protein lateral flow test available to date and recent clinical validation data has reflected this strong analytical performance. 

The clinical study tested 98 positive COVID-19 samples across a broad range of high and low viral loads (31 with Ct<26; 65 with Ct 26-30 and 2 with Ct 30-31). The test identified 96/98 of these correctly as positive with a 20 minute read time resulting in a clinical sensitivity of 98.0% for samples within this broad range down to low viral loads. Out of a total of 102 negative samples tested with the lateral flow device, the test correctly identified 101 as negative, giving a clinical specificity of 99.0%. 

The test is now capable of identifying individuals with infectious viral loads using an anterior nasal swab sample and is therefore suitable for mass deployment to identify those people who are likely to infect others so that they can isolate and reduce the spread of the infection. 

The Company makes a reasonable assumption, based upon the growing combined understanding of SARS-CoV-2 and COVID-19, that a person is infectious and likely to infect others if their viral load is > 10,000 genomes/ml (i.e., approximately > 100 pfu/ml and Ct < 25). According to recently published data from the Liverpool Covid Smart Pilot, a viral load of < 10,000 genome/ml leads to a likelihood of infecting others of around 10%. Therefore, at this low end of the infectious range the risk of infecting others appears to be quite low. Whereas the risk of a person with a viral load ~1,000,000 genome copies/ml is around 50%. Highly infectious people can have viral loads > 100,000,000 genome copies/ml.

With all this in mind, for a rapid antigen test to have clinical utility (and therefore sustainable commercial value) it should be able to detect SARS-CoV-2 viral load of a few hundred pfu/ml, or Ct of 25 or below, or > 10,000 genomes/ml. Laboratory testing suggests that the AffiDX® SARS-CoV-2 Antigen Lateral Flow Test could be the most sensitive spike antigen test so far available. 

In summary, the AffiDX® SARS-CoV-2 Antigen Lateral Flow Test has excellent analytical sensitivity (LOD) of 50 pg/ml S1 spike protein, which appears sensitive enough to detect the lowest viral loads of relevance to the Intended Use Case, with a read time of 20 minutes. As far as the Group is aware, this is the most sensitive S1 spike lateral flow test available. 

On the basis of this excellent clinical data, the Group will now complete the technical file, including accelerated stability data, for CE marking the test for professional use early in May 2021 followed immediately by commercial roll-out.

Mologic partnership

Whilst the Group establishes its own ISO13485 accreditation, in order to achieve the fastest possible and lowest risk route to CE marking, Avacta has established a partnership with Mologic Ltd. so that the AffiDX® SARS-CoV-2 Antigen Lateral Flow Test can be CE marked for professional use quickly under Mologic’s established ISO13485 Quality System. The CE mark will then be transferred to Avacta when it achieves ISO13485 accreditation, which is expected early in May 2021. 

As part of the collaboration between the two companies, Avacta and Mologic are also exploring the possibility of combining Avacta’s spike antigen test with Mologic’s nucleocapsid antigen test in a single device which would be a world first and has the potential to deliver the most sensitive rapid antigen test possible. The two companies will evaluate whether the two tests can be combined in a single device and then make a commercial decision on whether to pursue this second generation COVID-19 diagnostic. 

Avacta will immediately be able access initial manufacturing capacity through Mologic’s close partner Global Access Diagnostics (GAD), in addition to scale-up manufacturing capacity with BBI and Abingdon Health. Combined, these manufacturing partnerships can scale up to several million tests per month and potentially much higher with further investment. Avacta is also continuing its discussions with other manufacturers in the UK and overseas in order to be able to access additional capacity to ensure that it can meet the expected demand. 

The Group continues its commercial discussions with potential customers for the AffiDX® SARS-CoV-2 Antigen Lateral Flow Test and expects demand to be present for rapid testing for at least two years and probably for longer. Only by having a high-quality test that identifies the majority of infectious individuals can this clinical need be translated into commercial success and the Group believes that the recent initial clinical data are extremely encouraging in that regard. 

BAMS™ SARS-CoV-2 assay 

In collaboration with Adeptrix Inc, Avacta has developed a mass spectrometry assay on Adeptrix’s BAMS™ platform which combines enrichment of the sample using Avacta’s SARS-CoV-2 spike protein Affimer® binders to improve sensitivity with the power of mass-spectrometry for analysis. Up to one thousand samples per day can be analysed by a single technician using BAMS, exceeding the capacity of a single PCR machine.

In January, Avacta established a collaboration with Bruker Corporation (Billerica, MA) (NASDAQ: BRKR, ‘Bruker’) to evaluate the Affimer-based SARS-CoV-2 BAMSTM assay and assess the suitability of the test as a professional-use in-vitro diagnostic (‘IVD’) product for SARS-CoV-2 infection to run on Bruker’s MALDI-TOF instruments. 

Bruker is one of the world’s leading analytical instrumentation companies, providing high-performance scientific instruments and high-value analytical and diagnostic solutions to scientists globally. It is also one of the foremost suppliers of mass spectrometers with a significant installed based in clinical microbiology laboratories in hospitals world-wide.

Having successfully developed a prototype test with Adeptrix, Avacta, has been working with its clinical partners in the UK to refine the assay to fit into the typical workflows in a clinical microbiology laboratory and to work well on the type of simplified mass spectrometer that is found in this setting. Avacta is working closely Bruker and Adeptrix on this process.

There is now a well-established PCR-testing capacity in most countries that is capable of dealing with current demand, making the commercial case for mass spectrometer based additional capacity less compelling than anticipated by the two companies.

In light of this rapidly changing COVID-19 hospital testing market Avacta is working closely with Bruker and Adeptrix to review the commercial strategy for the SARS-CoV-2 assay and for a wider range of BAMS proteomics tests in general.

Therapeutics & Animal Health

Elsewhere in the Group, there was also significant progress in the Therapeutics Division and restructuring in the Animal Health division to re-focus its attention to the benefit of the wider group.

In therapeutics, the Company established a partnered programme (‘AffyXell Therapeutics’) in South Korea with Daewoong Pharmaceutical Co. Ltd., to develop the next generation of cell and gene therapies, incorporating Affimer® proteins to enhance the immune-modulatory effects. Programme subsequently expanded to provide access to the Affimer® platform for neutralising Affimer® therapies for the treatment of seriously ill patients with COVID-19 and to also prepare to rapidly develop similar therapies for future global pandemics.

The division successfully demonstrated initial proof-of-concept for its proprietary new class of drug conjugate, ‘TMAC®’, in a pre-clinical animal model of cancer and expanded the existing multi-target collaboration and development agreement with LG Chem Life Sciences (‘LG Chem’) to include new programmes incorporating Avacta’s Affimer XT™ serum half-life extension system, deal worth up to $98.5 million plus royalties.

The Division submitted the Clinical Trial Authorisation (“CTA”) to the UK Medicines and Healthcare products Regulatory Agency (“MHRA”) for a phase I dose-escalation and expansion study of AVA6000 pro-doxorubicin, Avacta’s first pre|CISION™ FAP-activated prodrug. On schedule to select the next pre|CISION™ prodrug chemotherapy clinical development candidate from the pipeline by the end of 2021. 

On 1 February 2021, AffyXell Therapeutics (‘AffyXell’), the partnered programme with Daewoong Pharmaceuticals (‘Daewoong’), closed a series A venture capital investment of $7.3m to further develop its pipeline of next generation cell and gene therapies.

On 18 February 2021, the Medicines and Healthcare products Regulatory Agency (‘MHRA’) approved the CTA for AVA6000 pro-doxorubicin for a phase I, first-in-human, open label, dose-escalation and expansion study in patients with locally advanced or metastatic selected solid tumours. The Group anticipates dosing first patients in mid-2021 subject to COVID-19 restrictions on hospital resources with first pharmacokinetics read-out possible before the year end. 

Dr Alastair Smith, Chief Executive Officer of Avacta Group, commented: “There is no doubt that 2020 was a momentous year for Avacta. I am enormously proud of the entire team who have been instrumental in delivering this transformational growth and creating substantial commercial and clinical opportunities for the Group for 2021 and beyond, despite the difficult working conditions imposed on laboratory working by the COVID-19 pandemic. 

We are now very close to self-declaration of the CE mark of the AffiDX® rapid antigen test for professional use and commercial launch in early May. We have made very good commercial progress with potential distributors, licensing partners and large-scale end users and demand is strong. We also expect to see the first pharmacokinetic data for AVA6000 before the end of the year which will give us the first indication of the effectiveness of the pre|CISION™ chemistry in humans so I am very much looking forward to updating the market on these events and other progress across the Group during the coming months.”

Financial highlights

Revenue

Group revenues for the year ended 31 December 2020 decreased to £3.64m (17-month period ended 31 December 2019 (“FY19”): £5.51m). Diagnostics revenue decreased to £0.52m (FY19: £0.81m) due to the reduction in the number of custom Affimer® reagent projects following pandemic related lock-down and a laser focus on developing COVID-19 lateral flow tests and other related COVID-19 projects.

Therapeutics revenue decreased to £1.63m (FY19: £2.52m), with FY19 somewhat skewed by the exceptional upfront technology access fee from the LG Chem collaboration and lower funding from FTE development projects due to restricted working practices at the Cambridge site.

Revenues for the Animal Health division fell to £1.49m (FY19: £2.18m), with 2Q20 revenues severely reduced due to the closure of most veterinary practices during the first lockdown. Revenues for 2H20 recovered strongly and were only slightly behind 2H19.

Research & Development

Group expensed £8.96m (FY19: £7.86m) research costs relating to the in-house Affimer® and pre|CISION™ therapeutic programmes due to their pre-clinical stage of development. In addition, research costs on Affimer® diagnostics products, which have not yet completed product development and obtained regulatory approval to become commercial products, were also expensed.

In addition, prior periods of capitalised development costs of Affimer® reagents and diagnostics platforms together with new Animal Health allergy tests have been amortised during FY20, resulting in a charge of £1.01m (FY19: £2.20m) to the income statement. FY20 development costs, amounting to £0.17m (FY19: £1.88m) were capitalised during the period to be amortised over future periods.

Partnerships

The share of losses from the research costs of the therapeutics partnered programme with Daewoong Pharmaceutical, AffyXell Therapeutics, accounted for as an investment in associate, amounting to £0.22 million (2019: £nil) have been expensed using the equity method.

Restructuring and Impairment Charges

Following the restructuring of the Animal Care business, near-term revenue estimates have been revised down in the light of the COVID-19 pandemic. This has resulted in an impairment charge of £1.74m (2019: £nil) against the intangible assets associated with the Animal Health division comprising of goodwill and capitalised development costs. 

General Overheads

Administrative expenses have fallen during the year to £7.32m (FY19: £10.06m) alongside depreciation at £1.13m (FY19: £1.64m) largely dure to the shortened reporting period to 12 months versus the 17-month reporting comparative reporting period.

Loss Before taxation

LBT was therefore £21.34m (FY19: £18.05m) with research and development tax rebates of £2.45m (FY19: £2.44m resulting in a reported loss for the period was £18.89m (FY19: £15.62m).

Cashflow and Balance Sheet

Operating cash outflows from operations amounted to £13.35m (FY19: £14.44m) following cash receipts in respect of research and development tax credits amounting to £2.75m (FY19: £1.63m), which represented the tax refund for the previous 17-month financial period.

During the year, capital expenditure increased to £1.28 million (2019: £0.62 million) as facility expansion at both Wetherby and Cambridge sites were underway. Capitalised development costs fell during the year to £0.17 million (2019: £1.88 million) as the majority of diagnostic development work was not at the stage of gaining regulatory approval for commercial launch of products.

The Group completed two fund-raises via a combination of placings and subscriptions during the reporting period. The first fund-raise, which was announced in April 2020, raised £5.36m net. The second fund-raise was announced in June 2020 and raised £45.43m net. The Group therefore reported cash and short-term deposit balances of £47.91m at 31 December 2020 (FY19: £8.79m) following the successful placings. 

Net assets as at 31 December 2020 were £61.93m (FY19: £25.81m) of which short-term deposits, cash and cash equivalents amounted to £47.91 million (FY19: £8.79m).

Outlook 

Whilst there were several significant milestones successfully achieved during FY20, there are still many more valuation inflection milestones to achieve in FY21 including the dosing of the first patient in the AVA6000 clinical trial, the anticipation of initial pharmacokinetic data for AVA6000 and the pre|CISION™ platform before year end and the launch of the SARS-CoV-2 antigen lateral flow test with the potential to generate substantial revenues. 

The Diagnostics Division is clearly poised to capitalise on a substantial commercial opportunity for high quality rapid testing for COVID-19 with a pipeline of non-COVID-related in-house diagnostic tests for a range of diseases and conditions being developed to be brought to market from 2022 onwards, adding to long-term COVID-19 testing revenues.

Affimer® reagent licensing deals for diagnostic and other applications now being delivered for a pipeline of Affimer® technology evaluations will undoubtedly create the potential for long-term royalty income.

As part of the Wholly-owned Therapeutic Pipeline, Avacta is in transition into a clinical stage biotech with the dosing of first patient in mid-2021 with the first pre|CISION™ pro-drug, AVA6000 pro-doxorubicin, in a phase I study in patients with locally advanced or metastatic selected solid tumours with a strong pipeline of multiple Affimer® and pre|CISION™ clinical candidates to be generated in 2021 and 2022 for pre-clinical and clinical development.

As part of its Drug Development Collaborations, it has also made strong operational progress, despite the restrictions imposed by COVID safe working, with the expansion of the partnership with LG to include Affimer XT™ half-life extension platform and AffyXell, a partnered programme with Daewoong Pharmaceutical, established in South Korea to develop next-generation cell and gene therapies incorporating Affimer® immuno-therapies; successful series A funding for AffyXell of $7.3 million post-period end. It has also establishment of new collaboration with POINT Biopharma for pre|CISION™ radiopharmaceuticals.

View from VOX

At this stage of the Group’s development, and given the strong balance sheet, the key performance indicator for investors is now non-financial and based around the progression of the Affimer® and pre|CISION™ technologies progressing into clinical trials.

Healthcare services providers and governments are likely to be the largest volume customers of a professional use rapid antigen test and with an estimated price point in the mid-single digit GBP range. A higher price point is anticipated for sales to corporates for workforce testing.

With the Company and its industry partners estimated to be building capacity for between 5-30 million units per month, the upside in terms of revenue generation and subsequent valuation inflection points are clear.

Shares in AVCT have retreated from all time hights of 274p to open at 242p following the release of the FY20 results. However, with significant positive newsflow expected this year and significant revenue generation, the next 12 months are expected to be particularly strong for the shares.

AVCT price chart

Reasons to FOLLOW AVCT

Avacta is developing cancer immunotherapies and diagnostics based on its two proprietary platforms - Affimer® biologics and pre|CISION™ tumour targeted chemotherapies. 
Its Affimer platform is an alternative to antibodies derived from a small human protein.  
Despite their shortcomings, antibodies currently dominate markets, such as diagnostics and therapeutics, which is a market that is believed to be worth in excess of $100bn. 

Therapeutics 

The pre|CISION targeted chemotherapy platform releases active chemotherapy in the tumour, which limits the systemic exposure that causes damage to healthy tissues, and thereby improves the overall safety and therapeutic potential of these powerful anti-cancer treatments. 

Avacta's Therapeutics Division is addressing ‘a critical gap in current cancer treatment’ - the lack of a durable response to current immunotherapies experienced by most patients.  
By combining its two proprietary platforms the Company is building a wholly owned pipeline of novel cancer therapies designed to be effective for all cancer patients.  

In 2021, Avacta commenced a phase 1 first-in-human, open label, dose-escalation and expansion study of AVA6000 Pro-doxorubicin, the Company's lead pre|CISIONTM prodrug, in patients with locally advanced or metastatic selected solid tumours. 

COVID-19 Test Development 

Avacta has also developed a SARS-CoV-2 lateral flow rapid antigen test aimed at identifying infectious individuals so that they can isolate promptly and reduce the spread of COVID-19.  

Recent data returned earlier this week from the Company’s ongoing clinical studies across Europe and the UK demonstrated an ‘excellent performance’ of the SARS-CoV-2 rapid antigen test in identifying patients with an infectious viral load and no false positive results. 

As a result of ‘excellent initial data’, the Company said it will now progress to a full clinical validation with a larger number of patient samples to CE mark the test for professional use, aiming to bring the test to market in Europe around the end of the first quarter of this year.  

These data from the first clinical studies will allow it the Group to advance into a full clinical validation of the test, manufactured at scale, at its clinical trial sites in the UK and the EU.