What caused this immense growth? And Should I be adding the stock to my portfolio? Let’s take a look.

Why did the Avacta share price explode last year?

Avacta is a small biotech company that focuses on the development and production of drugs and diagnostic medicines. While its expertise lies within cancer immunotherapeutics, in 2020, the firm began leveraging its knowledge to start designing a rapid Covid-19 test.

The company partnered with Cytiva to develop it back in April last year. And this project appears to be the primary catalyst behind Avacta’s surging share price. The upward momentum only continued as the company released a continuous stream of positive results and new partnerships to accelerate its test development.

In August, it was ready for clinical trials. In September, the manufacturing capacity was expanded. Later that month, a research kit became available for other pharmaceutical companies. More recently, in January this year, the preliminary results from early-stage trials showed a 96.7% accuracy in identifying Covid-19 infections within patients.

The company is now pursuing full clinical approval to launch its test within Europe before the end of Q1 2021. 100’s of millions of rapid Covid-19 tests will likely be needed throughout this year and beyond. Combining that with the additional royalties from treatments developed with its research kit, there is an enormous growth opportunity for Avacta and its share price.

Let’s take a step back

As promising as this company seems, the valuation is borderline insane. At least, I think so. Even if Avacta’s rapid Covid-19 test is approved and distributed throughout Europe, current forecasts indicate total revenue for 2021 of around £8m. And that’s including the income from its other product developments and collaborations unrelated to the pandemic.

Comparing that to the current market capitalisation of £689m places the price-to-sales ratio at 86. Needless to say, investor expectations may be a bit too high. And Avacta’s share price could come crashing right back down should its Covid-19 test fail to receive regulatory approval for use.

It’s true the preliminary results showed a 96.7% accuracy. But this was on a sample size of 30. A much larger number of patients needs to be tested before any approval can occur. And these new results could be vastly different.

The bottom line

There is no denying that Avacta’s rapid Covid-19 test is an incredible opportunity for the business. If successful, the increased cash flow could lead to further development of its other offerings, generating even more growth over the long term.

However, business valuation matters. And personally, even if the most optimistic outcome were to occur, I believe Avacta’s share price is far too high. Therefore, I’m not adding the stock to my portfolio today.

The post The Avacta share price is up 1,750% in 1 year! Should I buy now? appeared first on The Motley Fool UK.

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Zaven Boyrazian does not own shares in Avacta Group. 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.

The total investment in Galvani over the next seven years could be as much as £540m and the deal represents an important step forward in GlaxoSmithKline’s bioelectronics research. This should help to further diversity its business model, with its appeal for investors seeking out a resilient, robust and relatively consistent healthcare company remaining high at a time when the outlook for the wider index is highly uncertain.

Although GlaxoSmithKline has risen in value by 24% since the turn of the year, it still yields 4.7%. This not only indicates that it remains a top-notch income play, but also shows that further share price gains could lie ahead – especially with sterling being weak and providing a boost to the company’s bottom line.

Profitable but pricey?

Also reporting today was Fidessa (LSE: FDSA), with the information solutions company’s first half sales rising by 4% (constant currency). In fact, Fidessa’s top line grew across all of its business lines and regions and with 63% of its total revenue being derived from outside of Europe, the potential challenges that may come to the fore in the UK and EU may not dampen Fidessa’s operating performance in future.

Fidessa’s revenue is also made up of 86% recurring revenue, which provides it with relatively high consistency and resilience. And with strong cash generation, Fidessa has been able to increase dividends by 9% in the first half of the year. This puts it on a yield of 3.4% and with its bottom line due to rise by 5% in each of the next two years, further growth in shareholder payouts could be on the horizon.

However, due to Fidessa having a price-to-earnings (P/E) ratio of over 30, now may not be the right time to buy it. Certainly, it may perform well as a business, but for investors there could be better opportunities available elsewhere.

Growth ahead but losses for now

Meanwhile, life sciences and animal care market specialist Avacta (LSE: AVTC) has today released a pre-close trading update prior to the release of its full-year results. Revenues for the year have increased by around 19%, which is in line with market expectations. Although losses almost doubled to £4.6m, this was at least partly due to a change in accounting policy. And with Avacta making strong progress in the development of its Affimer affinity purification systems, its shares could offer improved performance following their 36% fall since the start of the year.

Looking ahead, Avacta expects to continue to grow the pipeline of its Affimer technology evaluations, many of which are now on-going. It anticipates that this will ultimately deliver a flow of ‘Affimer powered’ products to positively catalyse its long-term growth. As such, it has long-term potential, but with it being lossmaking and a relatively small entity, there may be better risk/reward opportunities available elsewhere.

The post 3 stocks set to soar after today’s news flow? appeared first on The Motley Fool UK.

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Peter Stephens owns shares of GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Fidessa. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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.

The post Avacta Group Plc Jumps After Transformational Moderna Therapeutics Deal appeared first on The Motley Fool UK.

More reading

• As Endeavour Mining shares jump 7% on Q1 results, is this a way into the gold rush?
• £5,000 invested in this red hot FTSE 250 growth stock last month is now worth…
• Missed the ISA deadline? Ignoring the next one could mean throwing away a £5,150 annual second income opportunity!
• As Standard Chartered shares jump on impressive Q1, is this a FTSE 100 banking bargain?
• Amazon stock climbs after Q1 earnings! Here’s what I’m doing next

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.