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Avacta‘s (LSE: AVCT) clinical-stage life sciences company, and caught the attention of investors when the share price rose in 2020. The big hope is that it will go up again one day.
At the time of the pandemic, the business was making products used to test for Covid-19. It even managed to sell some of them. That created speculative buying of the stock.
However, even the company’s Covid test kits were not enough to create a net profit for the business.
Getting out of the diagnosis
In September, the company said it was looking for a buyer for its diagnostics division. If successful, it could get some much-needed funding. But at the same time it will kill the income from that category.
Meanwhile, the stock price chart shows the changing fortunes of the company. With the stock in the ballpark of 45p, it is down almost 65% this year.
A major ongoing focus of Avacta’s efforts is the development of drugs to treat cancer. The company explains its pre|CISION technology as a “proprietary warhead delivery system”.
Work progress
Given the large number of people with cancer, the fight against this disease seems like an attractive proposition. Avacta is trying to develop therapies that target the tumors themselves, while preventing harmful effects on normal tissues. Maybe that workplace can produce a best-selling product in the future and relaunch the stock price.
The company presented an update on progress with the September interim results report. Chairman Shaun Chilton said the company prioritizes medical investments, including “speed up” of its AVA6000 clinical trial registration.
AVA6000 showed a “very encouraging” tolerance profile with “strong” early signals of efficacy in both dose-escalation arms of its Phase 1a trial.
The directors are there “encouraged” by the power of “new” medications in the Avacta line. The company’s AVA6000, AVA6103, and AVA7100 systems “a highly differentiated asset, addressing large markets”.
Bigger expenses, smaller income
However, early-stage development is an expensive and time-consuming game. Loss-making companies like these tend to keep operations going by issuing more shares and raising more money for shareholders. For example, Avacta raised a fund in March to raise just over £31m.
Each issuance of new shares dilutes the existing holders. So if the drug development phase lasts too long, sometimes there may be little profit left for the longest and most patient investors. That’s even if the business finally starts making decent money.
In addition, treatment can fail even in the later stages of development. So those uncertainties are the biggest risks for Avacta shareholders today.
However, the company has been developing its stable of potential new drugs and each passing week may bring it closer to commercial success. So Avacta shares may recover at some point. But there is a big risk that shareholders will behave at this time.
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