Investing in biotechnology stocks is a notoriously risky endeavour. But the industry is popular with many investors because of the way biotech stocks can skyrocket on the back of positive news. For evidence of this, look to Avacta (LSE: AVCT), the UK life sciences firm. The Avacta share price is up 168% in the last year alone!
What’s caused this rise? And should I snap up some shares today?
An exciting technology
Avacta is a clinical-stage developer of cancer therapies and is listed on the Alternative Investment Market (AIM). The stock took off during the pandemic after the firm used its antigen technology to develop a testing kit to detect the coronavirus. Starting in 2020, the shares rose 1,500% in just one year. The share price then crashed 84% over the next 12 months after it discontinued its test kits.
The reason for the recent rise is due to growing excitement around Avacta’s core technology. The company’s pre|CISION platform is developing drugs that could reduce the toxicity of chemotherapy.
The most promising and advanced potential treatment is AVA6000. This is designed to boost chemotherapy efficacy and minimise off-target toxicity. The hope is that this treatment can alleviate many of the unpleasant side-effects of chemo, including nausea and hair loss.
Alistair Smith, Avacta’s founder and CEO, thinks AVA6000 could one day mean “chemotherapy without side effects“.
Positive results
Phase I trials for this drug candidate began in 2021. In January, the company released results that showed AVA6000 was well tolerated. And that an analysis on tumour biopsies from six patients suggested “doxorubicin is being released within the tumour tissue confirming the tumour targeting potential of the pre|CISION technology”. That indicates a degree of efficacy, though much further evidence is obviously needed.
The trial also saw a “marked reduction” in the “typical toxicities associated with the standard doxorubicin chemotherapy administration“. That suggests it could indeed reduce the side effects from chemotherapy.
This is obviously exciting news for Avacta and potentially great news for cancer patients too. However, this is still only early days and the stock remains risky. It will be many years (if ever) before this cancer treatment is approved by regulators for use.
Meanwhile, the company remains loss-making. It recorded a pre-tax loss of £29m last year, and a similar loss is expected this year. Later phase trials are more expensive, so I’d expect losses to mount from here.
The company does operate another platform called Affimer, developing alternative treatments to antibody therapies. However, these programmes are still in the research phase.
My move
Nearly all biotechs end up going one of two ways. Their drug candidates fail in trials and they disappear. Or their technology shows enough promise that a larger pharma company acquires them. Avacta’s platforms are showing enough potential that I think this AIM biotech could be an acquisition target at some point.
The share price could rocket if that happens. Alternatively, more positive drug development news could spark a rally in the shares. However, I don’t invest on the basis that a firm could be acquired. And while its technology looks promising, we’re still many years away from any treatments getting approved.
Overall, this biotech is too speculative for my tastes. So I won’t be buying shares as things stand.
