Avacta Group - Rapid Progress of Immuno-oncology Programs

Writen by Riccardo Lowi



  • Faster than expected development of the second immuno-oncology (I-O) program, a LAG3 inhibitor, allows company to evolve its lead program into a more ambitious LAG3/PD-L1 bispecific aiming to enter the clinic in 2020
  • Good progress of the ongoing external collaborations in two key areas: gene delivery (Moderna, OncoSec, FIT Biotech) and drug conjugates (Glythera)
  • Expect further licensing deals for Affimer reagents, based on multiple on-going evaluations
  • Stock price weakness reflects in our view uncertainty around a likely capital raise before year end rather than the company's strong fundamentals


Avacta Group Plc (LON:AVACT) reported interim results for the six-month period to January 31st, 2018. The company made good progress on both the Affimer therapeutics and reagents programs.

The company announced that a second I-O program (a LAG3 inhibitor) has progressed well allowing the company to leap-frog the planned first-in-man PD-L1 monotherapy and aim to take a PD-L1/LAG3 bispecific into the clinic on a similar time scale (2020). We believe that the PD-L1/LAG3 combo will have a much higher commercial appeal, as only half-dozen companies are currently working on PD-L1/LAG3 combinations and only two of those (Merck, Tesaro) have bispecific single molecules that are in pre-clinical trials. Avacta could catch up with these very quickly.

Figure 1: Avacta's target markets by segment

Source: Company presentation

The first commercial deal for Affimer reagents was signed in April 2017, and represented an important milestone in the de-risking of this business line.

Given the number of ongoing paid-for collaborations, we expect Avacta to announce at least one further licensing deal in the coming quarters.

With a cash balance of £8.3mn at the end of January 2018 and an estimated cash burn rate of £8-10mn per year, we expect the company to raise capital before year-end. Fresh money would cover R&D and operating expenses until their lead Affimer I-O programs complete the first in-human clinical studies (around 2020/2021), significantly increasing their value as licensing-out assets.

Figure 2: Key Affimers' competitive advantages

Source: Company presentation


We look at Avacta using a SOTP approach that considers separately the therapeutic programs and the reagents business.

Essentially we work out "backwards" what the implied equity value should be today, assuming Affimer products reach certain commercial levels ten years from now.

We make no changes to our previously published SOTP that yields an intrinsic equity value just short of £200mln versus a current market capitalization of about £25mn.

In our view the recent weakness of the stock price is largely driven by speculation around the likely rights issue in the coming quarters.

Figure 3: Avacta SOTP valuation

Source: Company data, CN analysis


We have updated our chart showing key milestones expected in the near term for the numerous in-house and external programs.

The initial research phase of the collaboration with Moderna has a natural end point in May 2018; we expect Avacta to potentially announce an extension of this collaboration in the next couple of months or to have transferred an Affimer to Moderna for them to develop.

Figure 4: Key milestones


Source: Company data, CN analysis


As the year progressed, we made minor changes to our FY 2018 forecasts.

Figure 5: Avacta summary financials

Source: Company data, CN analysis


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