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Avacta Group Plc - On track and undervalued

Writen by Riccardo Lowi

On Track and Undervalued

KEY INVESTOR MESSAGES

  • Lead I-O program on track to reach multiple pre-clinical milestones in 2018 and to start in-human development in 2019/2020
  • Two recently announced collaborations to exploit Affimers' therapeutic potential: Affimer drug conjugates with Glythera and Affimer gene delivery with OncoSec
  • Expect further licensing deals for Affimer reagents in 2018
  • Management anticipates that financial performance for the half year to 31 January 2018 will be in line with market expectations
  • Market capitalization significantly underestimates the potential of the Affimer platform (SOTP valuation roughly 4x current market cap)

SUMMARY

At the AGM of January 18th, Avacta reported good progress for both the Affimer therapeutic and reagents programs.

Their lead immuno-oncology development program is proceeding according to plan and multiple development milestones are expected in the course of 2018 (see next section for further details).

Besides the programs developed in-house, Avacta intends to exploit Affimers' potential through external collaborations, amongst which we count Moderna, Glythera, FIT Biotech and Phoremost.

THERAPEUTIC PROGRAMS

Looking more in detail at the development of the lead Affimer therapeutic candidate, in 2018 we expect to see:
 
- further data from various in-vivo models on efficacy, tox and immunogenicity
- in-vitro packages on tissue distribution, T-cells activation, APC activation, PBMC
 
These studies shall lead to the selection of a drug candidate to enter in-human development in 2019/2020.
 
In the course of 2019 Avacta plans to finalize the CMC and regulatory packages, the tech transfer dossier to a CDMO and to file to an IND in 2019/2020.

On the collaboration side, Avacta made progress with several partners.

From the ongoing collaboration with FIT Biotech we expect data from a proof-of-concept study in 2Q 2018, showing how well FIT gene delivery technology works with Affimers. If positive, this can evolve into a formal drug development collaboration agreement.

The partnership with Cambridge-based drug discovery company Phoremost will trigger royalty payments to Avacta based on the revenues from products developed using Affimer technology.
 
Finally Avacta recently announced the positive conclusion of a pre-clinical proof-of-concept study that validates the use of Affimers in the next generation drug conjugates that Glythera is developing.

Detailed financial terms of this partnership were not disclosed, but Avacta will receive a combination of development milestone payments and royalties on Glythera's product sales.

The study showed that Affimers remain fully functional in the presence of a toxic payload, whilst offering key advantage versus full-size antibodies in terms of a shorter, simpler and cheaper development.
 
Besides the development and manufacturing advantages that should translate in lower manufacturing costs, Affimer drug conjugates could also be technically advantageous compared to antibody conjugates, based on better tumor penetration, a more stable link with the toxin and the ability to modulate their half-life from a few hours to a few days.
 
This agreement brings Affimers closer to the drug conjugate market that is expected to grow from about $1bn today to $15bn in 2030.

Finally we note that the recently established partnership with US-based OncoSec further reinforces the case for developing better alternatives to traditional antibodies.
 
Because of their size and biophysical properties Affimers are very good candidates for gene delivery therapies.
 
Avacta and OncoSec will work together to study in animal models the effect of the intra-tumor administration of Avacta's Affimer DNA - including the genome of their PD-L1 inhibitor AVA04 -, delivered via OncoSec's ImmunoPulse technology.

REAGENTS PROGRAM

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.
 
Based on a growing number of high profile scientific publications and ongoing paid-for evaluations, we are confident that further commercial deals will be finalized in the coming quarters.

VALUATION

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.

As the development of the Affimer lead oncology program proceeds through the pre-clinical development in the coming quarters, we expect the stock price to progressively rise towards our implied valuation. 
 
With business progressing as expected, we make no changes to our previously published SOTP table, showing an intrinsic equity value just short of £200mln or roughly 4 times current market capitalization.

UPCOMING MILESTONES

We summarize below the key milestones expected in the near term

 

KEY FINANCIALS 

We did not make any change to our previously published financial forecasts, shown below.

 

 

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