Up 173%, can Avacta shares continue this incredible run?  

In the last few months, Avacta shares have jumped significantly. But does this warrant an investment or is it just a one-time leap?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Engineer Project Manager Talks With Scientist working on Computer

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In the last five months, Avacta (LSE:AVCT) shares have jumped nearly 173%. But this doesn’t tell the full story of this pharma stock. Despite the recent surge, this FTSE AIM share is still down 8.5% over the last 12 months and 3.9% in 2022. This price action points to a volatile asset that rises and falls rapidly with the market. So what’s the reason behind this new spike in interest and should I invest in this medical research stock? Let’s find out. 

The rise and fall of Avacta shares

The pandemic-driven pharma boom is well documented. But Avacta was a huge winner, thanks to its timely antigen test kits that were effective detection tools. Its shares rose an astronomical 1,125% between March 2020 (when Covid was first declared as a pandemic) and May 2021. 

But the rise of variants meant the efficacy of the results dropped, causing the company to pull its test kits from the market in early 2022. Subsequently, the Avacta share price fell 86% to 42p. 

However, in recent weeks, this pharma stock has made a big comeback. Here’s what happened and my verdict on the stock. 

Big developments

Avacta is still primarily a clinical-stage biopharma firm with a focus on cancer detection and treatment. While it has a few other divisions, its most promising oncology treatments are still under development. 

Right now, oncology is one of the fastest-growing medical sectors. The market for such treatments is growing at a compound annual rate of 9.6%, which will generate $292.8bn by 2028. 

And a recent update from the board showed some significant developments in bringing these cancer treatments to market. While it will still take a decade before Avacta’s new AVA6000 chemotherapy system reaches the market, the prospects are promising. 

The innovative treatment focuses on reducing the toxicity of chemotherapy on healthy cells by strengthening its tumour-targeting properties. This is done with the help of a protein marker that’s present in high amounts in cancerous cells. 

The update shows that the treatment will move to Phase II by the second half of 2023. This was earlier than first expected and shows me that Phase I dose escalation data has been favourable so far. 

At the same time, the company also rolled out updates on several key partnerships. Its ongoing relationships with LG Chem Life Sciences and Daewoong Pharmaceuticals both received positive updates. Results from these partnerships are expected to boost the disease detection product line of Avacta over the coming decade. 

Concerns and verdict

Positive business developments and the UK market rebound have triggered this recent jump in Avacta shares. But I don’t think the current growth rate can be sustained without visible financial results. Even if trials are completed, bringing new cancer treatments to market is no easy task. It could take years to reach profitability. 

And financially, the firm is still loss-making, recording a pre-tax loss of £29m last year. This makes this AIM share a very speculative investment. The market is volatile right now and further economic distress in the UK could cause the FTSE 100 and other indexes to tumble. And while its future looks promising, I’ll wait for Avacta shares to show signs of sustained growth across the rest of 2022 before I consider a small investment in 2023. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Suraj Radhakrishnan 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.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »