Avacta Group plc (LON:AVCT), the developer of innovative cancer therapies and diagnostics based on its proprietary Affimer® and pre|CISIONTM platforms, has announced its unaudited interim results for the six-month period ended 30 June 2020.
Operating highlights
Avacta Therapeutics
· Established AffyXell Therapeutics (“AffyXell”), a joint venture in South Korea with Daewoong Pharmaceutical Co. Ltd., (KSX: 069620), a leading Korean pharmaceutical company, to develop the next generation of cell and gene therapies incorporating Affimer proteins.
· Demonstrated initial proof-of-concept for its proprietary new class of drug conjugate, “TMACTM”, in a pre-clinical animal model of cancer.
Avacta Diagnostics
· Collaboration with Cytiva (formerly GE Healthcare Life Sciences) to develop a rapid test for the COVID-19 coronavirus antigen for mass population screening.
· Collaboration with Adeptrix (Beverly, MA, USA) to develop a high throughput Affimer-based SARS-CoV-2 antigen bead-assisted mass spectrometry test (“BAMSTM” test) to be used on hospitals’ existing installed base of mass spectrometers to diagnose COVID-19 infection.
· Exclusive distribution agreement announced with Medusa19 Limited (“Medusa19”) for direct-to-consumer sales of a saliva-based rapid test for the SARS-CoV-2 spike protein antigen.
· Collaborative work with the Centre for Virus Research at the University of Glasgow showed that certain Affimer reagents which bind to the SARS-CoV-2 virus spike protein prevent infection of human cells by a SARS-CoV-2 model virus, and therefore provide a potential therapy for COVID-19 infection.
Financial Highlights
· Fundraisings completed during the period raising £53.8 million to expand Diagnostics and Therapeutics programmes.
· Cash balance increased to £54.5 million (30 June 2019: £5.6 million; 31 December 2019: £8.8 million).
· Revenues increased to £1.8 million (6 months to 30 June 2019: £1.1 million; 17 months to 31 December 2019: £5.5 million).
· Operating loss of £8.1 million (6 months to 30 June 2019: £6.6 million; 17 months to 31 December 2019: £18.0 million), with research and amortisation of development costs increasing to £4.2 million (6 months to 30 June 2019: £2.9 million; 17 months to 31 December 2019: £10.1 million).
· Increased R&D investment leading to reported loss of £7.0 million (6 months to 30 June 2019: £5.7 million, 17 months to 31 December 2019: £15.6 million).
Post-period Highlights
Avacta Therapeutics
· Expansion of collaboration and license agreement with Daewoong Pharmaceutical Co. Ltd. (KSX: 069620) and AffyXell, the joint venture established in South Korea by the two companies, to develop stem cell treatments incorporating Avacta’s neutralising Affimer therapy for the treatment of seriously ill patients with COVID-19 and to also prepare to rapidly develop similar therapies for future global pandemics.
· Expansion of existing multi-target collaboration and development agreement with LG Chem Life Sciences (“LG Chem”), the life sciences division of the South Korean LG Group, to include new programmes incorporating Avacta’s Affimer XT™ serum half-life extension system.
· Appointment of Neil Bell as Chief Development Officer of Avacta Life Sciences responsible for the late stage pre-clinical and early clinical development of Avacta’s pipeline of pre|CISION pro-drugs and Affimer immunotherapies.
Avacta Diagnostics
· Appointed BBI Solutions, part of BBI Group (“BBI”), and Abingdon Health to manufacture the saliva-based rapid SARS-CoV-2 antigen test being developed with Cytiva.
· Commenced collaboration with the UK government’s CONDOR programme to evaluate and clinically validate the BAMSTM test developed with Adeptrix (Beverly, MA, USA).
· Entered into a collaboration with the Liverpool School of Tropical Medicine (“LSTM”) to provide clinical validation of the rapid, saliva-based coronavirus antigen test.
· Announced launch of an ELISA laboratory test for the SARS-CoV-2 spike protein to support global research efforts into the coronavirus that causes COVID-19.
· Collaboration with Integumen plc (LON:SKIN) to evaluate recently generated Affimer reagents that bind the SARS-CoV-2 spike protein for the detection of the coronavirus in waste water, to provide a real-time alert system to warn of localised COVID-19 outbreaks.
Alastair Smith, Chief Executive Officer of Avacta Group, commented:“It has been a period of significant advancement despite the restrictions placed upon all of us by the coronavirus pandemic and I am immensely proud of the Avacta team for having delivered substantial progress under these difficult conditions.
We have several momentous milestones ahead of us with the anticipated launch of a rapid, saliva based coronavirus antigen lateral flow test and the planned phase I study for AVA6000 pro-doxorubicin, the first pre|CISION pro-drug.
There are multiple other opportunities in the pipeline that have been created by the SARS-CoV-2 spike protein binding Affimers, such as the BAMSTM assay with Adeptrix and several others that we will update the market on in due course. We are working tirelessly to bring all of these opportunities to the point of revenue generation as quickly as we possibly can.
The recent placing has also allowed us to resource an expanded Affimer immunotherapy and pre|CISION chemotherapy pipeline and substantially increase the size of the research and clinical development teams at our Cambridge site to deliver on this. I am very pleased indeed that we now have the resources available to begin to unlock the potential of these two innovative and powerful therapeutic platforms.
It will be a very exciting and genuinely transformational year ahead for Avacta, as we work with our partners to progress through each of the necessary stages to deliver on all of these opportunities and I look forward to keeping the market updated as we hit the major milestones.”
Chairman and Chief Executive Officer’s Statement
Business Overview
It has been a period of significant commercial and operational progress in both the therapeutic and diagnostic divisions of the Group. The coronavirus pandemic has thrown up significant challenges to operational progress as well as potentially very substantial commercial opportunities arising from the development of diagnostics to help combat the spread of the disease.
Progress in our partnered therapeutic programmes and in our work to move AVA6000 pro-doxorubicin into the clinic have faced some COVID-related challenges because of the new ways in which we, and our partners and sub-contractors, have been forced to work. Nevertheless, we have been able to keep the delays caused to a minimum, with partnered programmes making good progress and we anticipate making the regulatory filing for AVA6000 in the UK by the end of the year.
We have now established major therapeutic research partnerships with LG Chem, Daewoong Pharmaceutical and ADC Therapeutics and, along with our partnership with Moderna Therapeutics, these represent an important part of our strategy to translate the Affimer platform into the clinic as quickly as possible to obtain human safety data for the platform.
The recent placing has provided substantial resources to expand our in-house therapeutic Affimer and pre|CISION pipeline. The Affimer pipeline is focused on bispecifics built upon the Affimer PD-L1 antagonist that has been developed over the past few years. A clinical candidate will be selected for IND enabling studies from the pre-clinical programmes (PD-L1/LAG-3; PD-L1/TGFb receptor trap; PD-L1/IL2) as soon as possible with the aim of regulatory submission for clinical development during 2022. There is potential for a partnered programme to generate first-in-human data for the Affimer platform sooner, and this bispecific strategy ensures that as well as delivering clinical data for the Affimer technology, valuable therapeutic assets will be generated for licensing. The pre|CISION pipeline will be rapidly expanded to demonstrate pre-clinical proof-of-concept for pro-drug forms of velcade, oxaliplatin and paclitaxel and the Group expects to take at least one of these into the clinic following positive interim read-out from the AVA6000 phase I study.
The announcement in April 2020 of our collaboration with Cytiva (formerly GE Healthcare Life Sciences) to develop a rapid COVID-19 antigen test for mass population screening, and then our rapid success in generating a large number of Affimer reagents that detect the virus spike protein, has shone a spotlight on the power of the Affimer platform. The outstanding performance of these Affimer reagents in Avacta’s ELISA laboratory test for the SARS-CoV-2 virus gives us great confidence that the lateral flow test will meet the clinical performance targets required. We are now supporting Cytiva and our manufacturing partners to finalise technology transfer which will deliver a scaled-up production process that will generate lateral flow test devices for clinical testing. It is essential that a robust process is developed that can produce the antigen test at scale for clinical validation in Q4, and good progress is being made in this regard. Once a robust process has been established it should be straightforward to transfer that to a number of manufacturers globally to meet the anticipated demand,
The rapid coronavirus antigen testing opportunity is significant; there is likely to be a long-term need for very high volume COVID-19 testing to support the global process of controlling the disease, getting healthy people back to work and rebuilding economies. In the UK alone, the demand for antigen testing in the community could be as high as 100 million tests per month in the medium-term. There is also likely to be a long-term need for antigen testing as the disease will remain in some societies for many years. Outside of this opportunity, which has raised the profile of the Affimer platform, there remains significant commercial potential for Affimer diagnostics to deliver long term sustainable revenues and with the test development work now almost entirely with our partners, Avacta’s diagnostics team is able to re-focus on the core business pipeline.
Fund-raising
In April 2020, the Group announced that it had completed a fundraising of £5.75 million through the placing and subscription of new shares which was considered necessary to strengthen the Group’s balance sheet in the light of the challenges being caused by the coronavirus pandemic and to ensure AVA6000 could be translated into the clinic before any further funding was required. The significant increase in market capitalisation, driven by the valuation of the COVID-19 testing opportunity, permitted the Group to raise significant funds (£48 million) with limited dilution for shareholders in June 2020. This has allowed the Group to fully fund an expansive Affimer and pre|CISION therapeutic pipeline and provide the working capital for the diagnostics division to deliver its near-term COVID products to market and its longer-term pipeline.
Our people
We would like to acknowledge the extraordinary effort and commitment shown by our teams during 2020 in the face of difficult circumstances caused by the pandemic and thank them for continuing to deliver significant progress during the reporting period.
We are pleased that, throughout this period of challenge, but also rapid growth and development, Avacta has managed to retain an entrepreneurial, open and inclusive culture with a high level of employee engagement and satisfaction. This has been reflected in successfully growing our teams and attracting world-class individuals such as Neil Bell, who has joined us as Chief Development Officer in our therapeutics division.
Effects of the COVID-19 pandemic
The Board continues to monitor and assess the impact of the COVID-19 pandemic on staff and on the Group’s businesses.
The commercial opportunity created by the SARS-CoV-2 spike Affimer binders is substantial. The performance of the Affimer reagents has been demonstrated clearly by Avacta in an ELISA laboratory test, and the remaining technical risk is related to successfully completing clinical validation with a product that can be manufactured at scale. The Group is working hard to put in place multiple manufacturing partnerships so that it can fully capitalise on the launch of a rapid coronavirus antigen test. Multiple other commercial opportunities have been created by the SARS-CoV-2 spike binding Affimer reagents, such as the collaboration with Adeptrix to develop a mass spectrometer based laboratory test, but also including a number of currently undisclosed potential licensing opportunities for COVID-19 testing. The value of all these developments is impossible to quantify at this stage, but it is clear that global demand for COVID-19 rapid testing solutions is potentially worth billions of pounds.
Many clinical trials in the UK have been halted due to the pressure on clinicians and hospitals during the current COVID-19 pandemic and the regulators are prioritising submissions related to COVID-19 therapies. Our contract manufacturing and clinical operations partners have reduced staffing levels to maintain social distancing, as has the Group. The Group is aiming to make its regulatory submission in the UK by the end of 2020 although continued restrictions imposed due to a second wave of coronavirus cases could delay this into Q1 of 2021. The Group has recently appointed Neil Bell, an immensely experienced drug developer, who is building the clinical development team to take AVA6000 and future clinical candidates into the clinic as quickly as possible. The rise in COVID-19 cases that we are currently seeing also has the potential to affect hospitals and patient recruitment in 2021.
Avacta Diagnostics Business Update
During the reporting period Avacta’s diagnostics team has largely focused on COVID-related developments. The ongoing development work is now with Avacta’s collaborators and therefore the diagnostics team can re-focus some of its efforts on the non-COVID pipeline of diagnostic tests, as well as supporting our collaborators where possible. Evaluations of the Affimer platform by third party diagnostics companies were largely halted during the initial phase of the pandemic because partners closed their sites. However, several of those evaluations continued and the team is working closely with those partners to convert them to commercial agreements.
Cytiva Collaboration
In April 2020, Avacta established a collaboration with Cytiva (formerly GE Healthcare Life Sciences) to develop a saliva-based rapid SARS-CoV-2 antigen lateral flow test utilising Affimer reagents to bind the virus spike protein.
A large number of Affimer reagents that bind the spike protein were generated in a few weeks and have now been fully validated in an ELISA (enzyme linked immunosorbent assay) laboratory test. The performance of the Affimer reagents in the ELISA is excellent in terms of the lower limit of quantification (i.e. how low a concentration of the virus spike protein can be accurately quantitated), and in terms of specificity, showing no cross reactivity with a number of other coronaviruses. The excellent performance of the Affimer reagents in an ELISA test dramatically reduces the technical risk associated with the Affimer reagents themselves with regards the COVID-19 lateral flow test.
Avacta’s product development strategy is to initially self-certify the lateral flow test for professional use, which it will be in a position to do as soon as the verification and clinical validation data is gathered. In order for the product to be CE marked for consumer self-testing a “lay user study” must be carried out, which evaluates the usability of the test by lay persons to ensure that the test can be carried out successfully and safely by the consumer. This study will be carried out as soon as is practically possible and in parallel with other activities. The completed technical file covering verification, validation and the lay user study will then be submitted to Avacta’s notified body for auditing and certification before direct-to-consumer product sales can commence.
Cytiva is now working with BBI Solutions to establish a scalable manufacturing process. This process involves developing methods which are different from those used in the laboratory to develop prototypes, which must work at scale to deliver a mass-produced test strip with the required performance. When this scale-up process is completed and the first pilot batch of lateral flow test devices is produced, a critical technical hurdle will have been overcome. Avacta’s intention is to use the pilot batch devices for clinical validation in Q4 using patient samples. When the first pilot batch is completed successfully, it will become possible to define the timeline to clinical validation and CE marking of both the professional and consumer use products with a greater degree of certainty and the Group will then communicate that timeline to product launch to the market. In the meantime Avacta continues to support its partners in reaching pilot batch production.
Adeptrix Collaboration
Avacta established a collaboration with Adeptrix to develop an Affimer SARS-CoV-2 test based on Adeptrix’s bead-assisted mass spectrometry (BAMSTM) assay platform. The diagnostic test would allow hospitals around the world to utilise their existing installed base of mass spectrometers that are not currently used for COVID-19 testing, thus contributing significantly to the increase in global testing capacity.
Avacta’s Affimer reagents that bind the SARS-COV-2 spike protein are used to provide the capture and enrichment of the virus from the sample which could be saliva, nasopharyngeal swabs or serum. Mass spectrometry is then used to identify the virus. The test can run up to one thousand samples per day and most hospital clinical microbiology laboratories have the necessary equipment, so a BAMS test could contribute meaningfully to centralised COVID-19 testing capacity.
Adeptrix quickly developed a BAMS assay using the Affimer SARS-CoV-2 spike reagents and demonstrated in the laboratory using spike protein that it performed very well. The assay is sensitive enough to detect SARS-CoV-2 virus spike protein captured by the Affimer reagents on just a single bead, and it is exquisitely specific because of the combination of Affimer capture and mass spectrum finger-printing. Access to clinical samples, in order to carry out clinical validation of the assay, has been very slow. In July 2020, Avacta was accepted into the government’s CONDOR programme, which was established to source patient samples for validating new tests, but this occurred at a time when there were significantly fewer positive samples available and a large number of new tests being evaluated, which has significantly delayed the clinical work on the BAMS assay. Avacta is working with the UK government’s CONDOR programme to accelerate this and is making good progress in its discussions with mass spectrometer manufacturing partners in order for them to provide BAMS test kits to run on their installed base of mass spectrometers in the UK and globally. The clinical evaluation data of the BAMS assay are key to securing these commercial agreements.
Research ELISA Test
Very recently, Avacta announced that it will launch an Affimer based ELISA laboratory test for the SARS-CoV-2 spike protein to support global research efforts into the coronavirus that causes COVID-19.
Enzyme linked immunosorbent assays (“ELISAs”) are very common research tools used to detect and quantify a target of interest in a wide range of samples. Using the same Affimer reagents that are incorporated into its rapid coronavirus saliva test being developed with Cytiva, Avacta has developed in-house a high performance ELISA laboratory test to detect the SARS-CoV-2 virus.
The Affimer-based ELISA test is capable of detecting the coronavirus spike protein in laboratory samples down to very low concentrations. An evaluation of the ELISA, carried out with The Liverpool School of Tropical Medicine using SARS-CoV-2 virus samples, shows that it can detect as little as a few thousand virus particles per millilitre of sample. This is typical of the levels found in infectious COVID-19 patients’ saliva whether they are symptomatic or not. Highly infectious COVID-19 patients can have many thousands or millions of times more spike protein in their saliva than this. This level of sensitivity in ELISA provides confidence that the same Affimer reagents will meet the targeted levels of clinical sensitivity in the lateral flow rapid antigen test.
The Affimer-based ELISA test is also highly specific to the SARS-CoV-2 virus with no cross-reactivity against other closely related coronavirus spike proteins.
Avacta plans to supply the SARS-CoV-2 spike protein ELISA reagent kit directly and is also in active discussions with potential OEM partners and distributors globally.
Avacta Therapeutics Business Update
During the reporting period, the therapeutics team focused resources on its fully-funded partner programmes and on AVA6000 pro-doxorubicin in order to generate first-in-human data for the pre|CISION platform, prioritising this as the nearest-term significant value driver for the therapeutics division.
The recent placing has provided the resources to expand our in-house therapeutic Affimer and pre|CISION pipeline. The Affimer pipeline is focused on bispecifics built upon the Affimer PD-L1 antagonist that has been developed which the Group has decided not to take into the clinic as a monotherapy in favour of investing in bispecific assets with much greater clinical and commercial value, albeit these will take longer to get into the clinic. A clinical candidate will be selected for IND enabling studies from the pre-clinical programmes (PD-L1/LAG-3; PD-L1/TGFb; PD-L1/IL2) as soon as possible with the aim of regulatory submission for clinical development during 2022. The pre|CISION pipeline will be rapidly expanded to demonstrate pre-clinical proof-of-concept for pro-drug forms of velcade, oxaliplatin and paclitaxel and the Group expects to take at least one of these into the clinic following positive read-out from the AVA6000 phase I study.
Since the Group raised substantial funds during June 2020, the therapeutics research team has been grown to allow for the planned rapid expansion of the Affimer and pre|CISION therapeutic pipelines, and the in-house clinical development team, under the leadership of Neil Bell, is being expanded in order to deliver a successful phase I clinical study for AVA6000 and take future drug candidates into the clinic.
AVA6000 pro-doxorubicin
AVA6000 is a pre|CISION pro-drug form of the generic chemotherapy doxorubicin which is commonly used to treat soft tissue sarcoma and a number of other cancers. The phase I clinical study for this pro-drug is designed to deliver two important objectives: 1) proof-of-concept in humans for the pre|CISION technology as a platform that can be applied in future to a range of other chemotherapies to target them to the tumour and reduce systemic side-effects; 2) first-in-human safety, pharmacokinetics and efficacy data for a pro-drug form of doxorubicin that is expected to generate a valuable therapeutic asset for licensing.
The effect of the coronavirus pandemic has been to cause some delay in the completion of pre-clinical work and GMP manufacturing of AVA6000, and in the preparation of the regulatory submission documentation. The recent placing proceeds have allowed Avacta to expand its clinical development team to bring more of the work in-house and the Group now expects to file the regulatory submission in Q4 2020 if there are no further COVID-related delays. The Group is aiming to dose first patient in Q1 2021, although this will depend to some extent on the severity of the second coronavirus spike and its impact on hospitals.
Partnered programmes
The partnered programmes with LG Chem, Daewoong and ADC Therapeutics have been slowed only slightly by Avacta’s COVID-19 precautions that have required two teams to work independently of each other to maintain social distancing in the laboratory.
LG Chem Life Sciences
In December 2018, Avacta and LG Chem entered into a multi-target therapeutics development agreement to develop Affimer® therapeutics in several disease areas potentially worth over $300 million to Avacta. Several programmes are ongoing with LG Chem with the objective of generating clinical candidates for LG Chem to take into phase I studies. Further details about targets, indications or progress cannot be provided due to commercial confidentiality. The next key milestone that will be made public will be the IND filing by LG Chem for the lead programme.
Post-period end, the two companies announced that they would expand their drug development partnership to include Avacta’s Affimer XTTM technology, which can be used to control the time a drug spends in the circulation.
The expansion of the partnership includes an undisclosed additional upfront payment, plus near-term pre-clinical milestones and longer-term clinical development milestones totalling $98.5 million for two therapeutics to be developed using the Affimer XT technology. Under the terms of the extended agreement, LG Chem has the exclusive rights to develop and commercialise, on a world-wide basis, Avacta’s Affimer PD-L1 inhibitor with Affimer XT serum half-life extension.
The expanded partnership also provides LG Chem with rights to develop and commercialise other Affimer and non-Affimer biotherapeutics combined with Affimer XT half-life extension for a range of indications and Avacta could earn up to $55 million in milestone payments for each of these new products.
In addition, under the agreement Avacta will earn royalties on all future Affimer XT product sales by LG Chem.
Daewoong Pharmaceutical
In January 2020, Avacta established a joint venture, AffyXell Therapeutics (“AffyXell”), in South Korea with Daewoong Pharmaceutical Co. Ltd., a leading Korean pharmaceutical company, and shortly after entered into a collaboration and license agreement for AffyXell to develop the next generation of cell and gene therapies, incorporating Affimer proteins to enhance the immune-modulatory effects.
Mesenchymal stem cells (MSCs) are promising agents for the treatment of autoimmune and inflammatory diseases. AffyXell is developing a new class of MSCs that are primed to produce Affimer proteins, which are designed to enhance the immune-modulatory effect when administered to patients, by reducing inflammatory and autoimmune responses.
Avacta is developing Affimer binders to several undisclosed targets which will be transferred to the joint venture to be incorporated into MSCs. Avacta’s research and development costs are fully covered by the joint venture and Avacta retains the rights to commercialise the Affimer proteins outside of the field of cell therapies.
Daewoong is providing AffyXell with access to its proprietary technology for generating allogeneic MSCs from a single donor to treat a large number of patients. This proprietary technology facilitates the development of cell therapies as “off-the-shelf” products.
The next key milestone for Avacta, Daewoong and AffyXell is the transfer of Affimer binders to the targets of interest to AffyXell and demonstration that MSCs can be primed to make and secrete them and that these Affimer drugs are functional. This is expected to be achieved during the second half of 2021.
Post-period end, the Group announced an expansion of its collaboration and license agreement with Daewoong and AffyXell to develop stem cell treatments incorporating Avacta’s neutralising Affimer molecules for the treatment of seriously ill patients with COVID-19 and to also prepare to rapidly develop similar therapies for future global pandemics.
Respiratory diseases such as COVID-19 can cause serious damage to the lungs as a consequence of over-activation of the patient’s immune system, resulting in cytokine release syndrome that can potentially lead to multiple organ failure and death. Stem cell therapies offer a very promising approach to repair the damage to lung tissues in these pulmonary diseases by controlling the immune balance.
The expansion of the agreement between Avacta, Daewoong Pharmaceutical and AffyXell extends the scope of the partnership to include Affimer molecules that target viruses, such as coronaviruses, in order to develop therapies that repair the lung damage caused by COVID-19, whilst also producing neutralising Affimer molecules to prevent the progression of the disease.
AffyXell will engineer mesenchymal stem cells to express SARS-COV-2 neutralising Affimer molecules in order to develop treatments for seriously ill COVID-19 patients and will also prepare for rapid development of next-generation stem cell therapies for future infectious respiratory disease outbreaks.
ADC Therapeutics
In Q4 2019, Avacta established a collaboration and option agreement with ADC Therapeutics SA (Lausanne, CH), to develop Affimer-drug conjugates combining Avacta’s Affimer® technology with ADC Therapeutics’ pyrrolobenzodiazepine (PBD)-based warhead and linker technologies.
As part of the multi-target collaboration, Avacta is now in the process of generating and optimising Affimer® binders against three undisclosed cancer targets and will provide these to ADC Therapeutics to target its proprietary cytotoxic warheads (PBDs) to the site of the tumour. ADC Therapeutics will carry out pre-clinical research and development programmes to evaluate each of the Affimer-drug conjugates with a view to generating clinical candidates.
The commercial agreement between the two companies provides ADC Therapeutics with options, on a target by target basis, to obtain exclusive licenses to the Affimer® proteins for clinical development and commercialisation.
Under the terms of the agreement, ADC Therapeutics will cover all Avacta’s costs during the collaboration. Upon ADC Therapeutics entering into each of the commercialisation licenses and successfully bringing new Affimer-drug conjugates to market, Avacta will receive option fees, development and commercialisation milestones, as well as a single-digit royalty on sales.
Avacta is in the process of generating Affimer binders to targets nominated by ADC Therapeutics and will characterise these Affimer binders before transferring them to ADC Therapeutics to be developed into drug conjugates for pre-clinical testing during 2021.
Avacta Animal Health Business Update
Avacta Animal Health provides specialised laboratory services to veterinary professionals worldwide.
Trading over the reporting period had seen a slow down as veterinary practices were focusing on emergency cases, with more routine appointments in relation to allergy or therapy testing being put on hold, given the restrictions on travel on the UK population. Revenues for the period were £0.68 million compared to £0.75 million in the comparable period in 2019, however operating costs for the reporting segment have been managed to see operating losses reduce from £0.33 million to £0.27 million.
Trading since the end of the reporting period has improved and the business continues to strengthen its position providing veterinary testing services, contract research services and sales of laboratory testing kits in-line with original budget plans to deliver growth in revenue and gross margins. The business has updated its online presence and digital strategy, alongside continued development of its R&D projects to support both UK and International growth.
Financial Overview
Revenue for the 6 months ended 30 July 2020 increased to £1.81 million compared to the same period in 2019 (6 months to 30 June 2019: £1.06 million; 17 months to 31 December 2019: £5.51 million).
Revenue contribution from the Group’s Therapeutics business increased to £0.80 million (6 months to 30 June 2019: £0.20 million; 17 months to 31 December 2019: £2.52 million) due to the increase of funded research projects, with the figure for the 17 month period including the upfront technology access fee arising from the LG Chem collaboration. In addition, the Diagnostic business increased to £0.34 million (6 months to 30 June 2019: £0.12 million; 17 months to 31 December 2019: £0.81 million) due to increasing numbers of custom projects. Revenues from Avacta Animal Health, the allergy and diagnostic testing business, decreased marginally to £0.68 million (6 months to 30 June 2019: £0.75 million; 17 months to 31 December 2019: £2.18 million).
Research costs from the expanding Therapeutics business, which are expensed through the income statement, increased to £3.54 million (6 months to 30 June 2019: £2.18 million; 17 months to 31 December 2019: £7.24 million), as the Company continues to invest in the Affimer and pre|CISION therapeutics programmes.
Selling, general and administrative costs have decreased to £3.14 million (6 months to 30 June 2019: £3.55 million; 17 months to 31 December 2019: £10.06 million). Depreciation has also decreased marginally to £0.52 million (6 months to 30 June 2019: £0.60 million; 17 months to 31 December 2019: £1.64 million). Share-based payment charges have increased to £1.44 million (6 months to 30 June 2019: £0.12 million; 17 months to 31 December 2019: £0.34 million). The increase in share based payment charges arises from the award of share options to staff and senior management during the period combined with a significant movement in the share price from a low of 14 pence to a high of 202 pence which impacts the calculations used in calculating the fair value of option awards under the Black-Scholes option pricing models.
The Group’s operating loss increased to £8.11 million (6 months to 30 June 2019: £6.61 million; 17 months to 31 December 2019: £18.0 million) and the reported loss after taxation increased to £6.99 million (6 months to 30 June 2019: £5.73 million; 17 months to 31 December 2019: £15.62 million).
The basic loss per share reduced to 3.74p (6 months to 30 June 2019: 5.12p; 17 months to 31 December 2019: 12.98p) due to the increase in the number of shares in issue following the completion of the fund raises in April and June 2020 when £5.7 million and £48.0 million (gross) respectively were raised and a further 71,944,443 ordinary shares were issued in total.
The Group capitalised £0.89 million (6 months to 30 June 2019: £1.01 million; 17 months to 31 December 2019: £1.88 million) of development costs, primarily relating to the Affimer reagents and diagnostics development programmes. These development costs are recognised within the total intangible asset value of £12.02 million (30 June 2019: £12.86 million; 31 December 2019: £11.80 million).
There was a cash outflow from operations of £4.39 million (6 months to 30 June 2019: £5.59 million; 17 months to 31 December 2019: £14.44 million) and an outflow from investing activities of £1.02 million on capital expenditure and capitalised development costs (6 months to 30 June 2019: £1.43 million; 17 months to 31 December 2019: £2.53 million). Cash inflow from financing activities, being amounts received from the issue of shares and exercise of share options net of lease payments amounted to £51.09 million (6 months to 30 June 2019: outflow £0.07 million; 17 months to 31 December 2019: inflow £19.11 million). The Group ended the period with £54.45 million net cash (30 June 2019: £5.63 million; 31 December 2019: £8.79 million) following the fund raises in April and June 2020.
Outlook
We have several momentous milestones ahead of us with the anticipated launch of a rapid, saliva based coronavirus antigen lateral flow test and the planned phase I study for AVA6000 pro-doxorubicin, the first pre|CISION pro-drug.
There are multiple other opportunities in the pipeline that have been created by the SARS-CoV-2 spike protein binding Affimers, such as the BAMSTM assay with Adeptrix and several others that we will update the market on in due course. We are working tirelessly to bring all these opportunities to the point of revenue generation as quickly as we possibly can.
The recent placing has also allowed us to resource an expanded Affimer immunotherapy and pre|CISION chemotherapy pipeline and substantially increase the size of the research and clinical development teams at our Cambridge site to begin to unlock the potential of these two innovative and powerful therapeutic platforms.
We expect it to be a very exciting and genuinely transformational year ahead for Avacta, as we work with our partners to progress through each of the necessary stages to deliver on all of these opportunities.
