Avacta (LSE:AVCT) is a pharmaceutical firm trying to combat the Covid-19 pandemic. The Avacta share price has exploded in the past 12 months. Based on this rise, I want to know if the FTSE AIM-listed share is a good investment for my portfolio.
Avacta share price rise
Avacta is a small biotech firm with two core proprietary platforms. Due to its size, it often partners up with larger, better known pharma giants who need its proprietary platforms.
One of Avacta’s Covid-19-related partnerships is with Cytiva. Avacta has also recently signed a distribution agreement with Medusa Ltd for direct-to-consumer sales of its Covid-19-related products.
Last March, the Avacta share price was trading for close to 20p per share. As I write, shares are currently trading for close to 240p per share. This is close to a mammoth 1,000% increase! I believe Avacta’s foray into Covid-19-related products have caused its share price to explode and remain higher than pre-Covid-19 levels.
Recent activity and performance
After Avacta’s initial announcement that it was attempting to produce Covid-19-related testing kits, it has made good progress. August saw it ready for clinical trials. A month later, manufacturing capacity was expanded. And a few short weeks later, it made a research kit available for other pharma firms too.
Just last month, Avacta announced that its preliminary results from trials showed over 96% accuracy in identifying Covid-19 in patients. This is a very high figure that I believe has helped maintain Avacta’s share price at this new higher level compared to last year.
Avacta is now pursuing a full clinical approval to launch within the EMEA region before the end of the first quarter of 2021. The Covid-19 pandemic does not seem to be going away, therefore many millions of tests could be needed over the coming months and perhaps years.
A business update at the end of February highlighted Avacta’s progress for its Covid-19 test kit as well as its other product pipeline. Avacta’s cash position was strengthened in its recent report. FY results are expected next month.
What I’m doing now
The Avacta share price has experienced a positive rise since the pandemic began and markets crashed. I have three issues with the Avacta share price. Firstly, is its high valuation. Forecasted revenue for its full-year ending 2021 compared to its current market cap of £689m reveals a price-to-sales ratio of close to 86 which is too high for me.
Next, if regulatory approval is not received, the Avacta share price could fall back to pre-crash levels and set it back. Finally, competition also makes me feel uneasy about Avacta’s longer-term prospects. There are bigger and more experienced pharmaceutical firms producing their own similar solutions that could trump Avacta’s.
Overall, if I invested in Avacta a year ago, I would be happy right now. Hindsight is a wonderful thing, however. Right now, I cannot justify to myself buying shares in Avacta based on the reasons above but I will keep an eye on developments. Here is a stock I do like right now and I believe it could be a good addition to my portfolio.
Jabran Khan 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.