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Is the Avacta (AVCT) share price about to explode?

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A Dechra Pharmaceuticals scientist uses a microscope
Image: Dechra Pharmaceuticals

The Avacta (LSE:AVCT) share price has been on a rollercoaster ride this year. Despite reaching its highest point in over a decade, the stock quickly crashed back down again a few months later. Today, its 12-month performance is a disappointing -20% return. But this month, Avacta is once again on the rise. So, what’s behind this latest growth spurt? And should I be adding this business to my portfolio?

The AVCT share price jumps on progress

I’ve previously explored why the Avacta share price has been on a downward trajectory this year. Long story short, its exceptionally lofty valuation came crashing down after the firm missed some key milestones. More specifically, management didn’t secure a CE mark for its antigen Covid-19 testing kit in May as initially anticipated.

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This matter has since been resolved, allowing the AVCT share price to stabilise. But it doesn’t appear to be what’s behind the recent upward trend. Last month, the company announced that the first patient in its Phase 1 trial for AVA6000 Pro-Doxorubicin has been dosed. In other words, the trial is now under way.

The drug is a generic chemotherapy treatment used to combat various forms of cancer. While plenty of alternatives are already available, the potential market size is estimated to reach $1.38bn by 2024. That certainly seems like an excellent opportunity to pursue, especially since Avacta’s drug reduces the systemic exposure of healthy tissues to the treatment. So, it’s safer and reduces the intensity of the side effects of traditional chemotherapy. If the drug can make it to market, then the AVCT share price could see some explosive growth over the long term.

Taking a step back

As exciting as the prospect for a superior chemotherapy treatment may be, there’s a long road ahead. On average, it can take up to 10 years before a drug makes it to the market from phase-one trials. And that’s if it’s able to pass regulatory efficacy and safety requirements. Historically, around 90% of drugs fail at this stage. And the same outcome may occur for Avacta’s latest treatment.

The first stage of the phase-one trials is expected to finish by the second quarter of 2022 and the overall trial by Q2 2023. The purpose of these milestones is to determine the correct dosage to be used for phase-two trials and further evaluate safety and tolerability. If the firm manages to complete these milestones on schedule and uncovers positive results, then I wouldn’t be surprised to see the AVCT share price surge. But that’s a big ‘if’.

The Avacta share price has its risks

The bottom line

All things considered, Avacta continues to look like a promising company. And seeing it diversify away from Covid-related products is an encouraging sign for long-term growth. But with so many unknowns moving forward, the AVCT share price (even after this year’s decline) still looks too rich for my tastes. Therefore, I’m keeping this business on my watchlist.

Personally, I'm far more interested in another growth stock that looks like its ready to explode...

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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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