Avacta's trial results hit the target again

09:21, 17th January 2023

What makes a great investment? Top notch technology, a wide economic moat, excellent management and an attractive valuation. And in my opinion, life sciences firm  ()  has all four.

Today, the company said that the results from its Phase 1 study for its pro-doxorubicin (AVA6000) treatment for cancerous tumours had met its primary goal. Reading between the lines, I suspect the data may have even surpassed its scientists’ own expectations.  

The results not only confirm AVA6000's safety profile, which continued to be well tolerated by the 19 trial patients including those in Cohort 4 at the highest dosing levels - equivalent to  more than 2 times the normal dose of doxorubicin. But after analysing a number of tumour biopsies across different cohorts, the results also showed that AVA6000 had successfully released its chemo-warhead around the tumour, and importantly at therapeutic levels which were much higher than those detected in the bloodstream.

Doxorubicin is already well known to be an effective treatment for cancer, but the news is particularly good as it allows the Safety Data Monitoring Committee to recommend continuation to higher dose cohorts, with the aim of identifying a maximum tolerated dose to be used within the Phase 1b and future studies. This work should be completed by the end of June 2023.

CEO Alastair Smith commented: “We’re delighted with the very positive data emerging from the dose escalation study of our lead pre|CISION tumour targeted therapy AVA6000. The very significant reduction in toxicities, plus the observed release of doxorubicin in the tumour tissue at significant levels, show that the pre|CISION platform has the potential to significantly improve the safety and tolerability of chemotherapies, and other drugs, by targeting their release to the tumour.”

So, what does this mean with regards valuation? Firstly, I suspect many investors had previously underestimated AVA6000’s chances of success. In fact before today’s RNS, even analysts at Trinity Delta had used standard industry failure rates of 90% in their risk adjusted models. I think a more tailored approach to valuation should be adopted here, especially given some of the most common problems associated with drug discovery don’t seem to apply as much to Avacta.

Moreover, the total addressable market for FAPα-activated drugs like AVA6000, the wider pre|CISION platform and chemotherapies in general is predicted to be worth $56bn by 2024. So assuming a reappraised 25%-50% success rate, I estimate Trinity Delta's valuation could hypothetically be upgraded from 219p to between 330p-580p per fully diluted share.

AVA6000 is not the only value driver either - Avacta also has a host of other ‘shots on goal’, not least its proprietary Affimer therapeutics and diagnostics platform, promising third-party licensing deals, and the recent £24m acquisition of Launch Diagnostics.

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