Avacta Group Plc Jumps After Transformational Moderna Therapeutics Deal

Shares in life sciences group Avacta (LSE: AVCT) have jumped by as much as a quarter today after the company announced that it had entered into a collaboration, licensing and option agreement with Moderna Therapeutics Inc.

The deal will see Moderna make an upfront payment of $500,000 to Avacta in order to gain access to Avacta’s Affimers range.

Affimers are engineered proteins that mimic the specificity and binding affinities of antibodies. Avacta has developed over 90 Affimer products that it currently offers for sale. Total order intake for Avacta’s custom Affimers to the end of April was £0.25m. However, to the end of April, revenue contribution from Avacta’s Affimer business was negligible

Big news

It’s clear that today’s deal is big news for Avacta as it effectively triples the company’s order backlog. 

Further, in addition to the $500,000 upfront payment, Moderna will also make pre-clinical development milestone payments to Avacta under the deal.

According to Avacta’s Chief Executive, Alastair Smith: “This agreement represents a significant opportunity for Avacta with tangible, near-term revenues from upfront payments and research services, with additional milestone payments and royalties on future sales of therapeutics. It is a transformational deal for Avacta and Affimers.”

Building momentum 

Avacta’s Affimers are not the company’s only revenue-generating asset, but they are the company’s most exciting. Avacta also runs an Animal Health business that reported revenues of £0.73m for the six months to 31 January 2015. 

But it’s Avacta’s Affimer business that’s really set to generate growth over the next few years. Over the past twelve months, the businesses momentum has really started to build. A number of deals have been signed with other biotechs and Avacta has doubled the number of Affimer products it has on offer for sale. 

Avacta is focused on providing Affimers to address gaps in the antibody. These gaps have been created by poor existing antibody performance. And the size of Avacta’s potential market is huge. 

It’s believed that the global antibodies market was worth around $60bn during 2012. The market has been growing at a rate of around 15% per annum since and is expected to continue to grow at this rate until 2018.

So by 2018 Avacta could be trying to take on a $150bn market with its Affimer products. Even if the company manages to grab a 0.01% share of this market, group revenue could exceed $1.5bn.

Target market

Right now, Avacta is focused on the cancer-fighting death-ligand 1 (PD-L1) as its initial target of interest.

Management believes that this product, being tested by a number of international pharma groups, could be greatly improved by the use of Affimer products. Sales from this one treatment alone could top $35bn per annum at its peak

High risk

Still, like all early-stage pharma groups, Avacta is a high-risk play. The company reported a loss from continuing operations of £1.5m for the six months to 31 January 2015.

According to current analyst figures, the company is unlikely to report a profit any time soon. Losses are expected to continue for the next two years and, as of yet, it’s unclear how today’s deal will change these figures. 

That being said, at the end of January Avacta reported a positive cash balance of just under £8m. So the company has some wiggle room.

But, all in all, Avacta's future is uncertain. If you're not prepared to take on the risk, The Motley Fool's top analysts have recently identified a company that they consider to be one of the market's "top small caps".

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.