Avacta (LSE: AVCT) shares have tumbled more than 50% in a little over two years. However, over five years, they’re among the best-performing shares in the UK market.
But how much would I have today if I’d invested £1,000 in this biotech stock in 2018? Well, five years ago, Avacta shares were approximately 26p each. Now, they’re trading for 115p, which translates into a 342% rise.
Therefore, my £1,000 would now be worth around £4,420, a more than quadrupling of my original investment. Nice.
What does Avacta do precisely?
The life sciences company has two parts to its business. There’s a diagnostics unit that develops and supplies a range of in-vitro diagnostic products. Then there’s the therapeutics division, which is built upon two proprietary platforms. One of these develops novel cancer therapies, and it’s this that has generated a lot of investor interest.
Avacta’s lead programme, AVA6000, is a tumour-targeted form of the established chemotherapy treatment doxorubicin. It works to slow or stop the growth of cancer cells by blocking an enzyme.
Unlike doxorubicin, however, AVA6000 is a ‘prodrug’, which means it remains inactive until it reaches the site of the tumour. Because of this, it may be useful for treating cancer with fewer side effects (including nausea and hair loss) than doxorubicin.
Very promising progress
In June, Avacta announced that the fifth dose escalation cohort in AVA6000’s phase 1 clinical trial had been completed successfully. The trial is evaluating the safety and tolerability of this potential drug.
The good news is that despite the high dose level, which was approximately 2.25 times a typical dose of doxorubicin, AVA6000 has continued to be well tolerated by patients. Indeed, there was a marked reduction in the incidence and severity of all chemotherapy side effects.
This treatment opens up the possibility of more frequent dosing, which could be revolutionary for patients (and the stock).
Meanwhile, the company continues to progress the diagnostics side of the business through acquisitions. Last year, it announced a £62m fundraise to help finance the purchase of Kent-based Launch Diagnostics for up £37m. This is a distributor of in vitro diagnostics tools within the UK.
Then in June, it bought Belgium-based Coris BioConcept for £7.4m. This firm manufactures and markets a variety of lateral flow tests.
Still a risky biotech
While all this is encouraging, it’s still early days for its promising therapeutics division. Many drugs move on from phase 1 to phase 2 trials, but the success rates decline as the process continues. Up to 70% of phase 2 trials and around 50% of phase 3 trials fail for various reasons.
So, even if it gets through the trials, we are still years away from this potential blockbuster drug generating any revenue. Meanwhile, the group’s diagnostics business only brought in revenue of £4.1m last year, on top of £5.5m from achieved therapeutics milestones. At the group level, it lost £39m, with more losses expected in the years ahead.
Therefore, it seems certain the company will need to keep selling shares along the way to fund its later stage trials. Couple this dilution with today’s sizeable market cap of £323m, and the stock seems too risky for my liking. So I’ll be investing my money elsewhere.
