Avacta Bounces 11% On Drug Trial News – How Far Will This Go?

Trade Avacta Shares Your Capital Is At Risk
Tim Worstall
Updated: 3 Feb 2022

Key points:

Avacta Group (LON: AVCT) shares have jumped 11% this morning on news about their drug trials. This is a welcome change from Avacta’s share price being influenced by the short-term issues over covid tests. For something that is becoming apparent is that the covid testing boost to share prices, in general, is coming to an end.

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Avacta Group’s share price has been influenced recently by its foray into covid testing. Why not, after all, there was lots of money in that field. The influence on the company has been fleeting though for the whole covid testing field is likely to be so. Varied nations are dropping testing requirements and give it a little more time and it’ll be just there in the background, like the ‘flu. Which we don’t test for religiously. Simple covid testing centres are going bust all over the place, test makers are going to find things increasingly difficult.

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Fortunately, Avacta isn’t concentrated purely on covid testing, unlike some other companies. There’s a real pharmaceutical research company behind this. Which is what the jump in the Avacta share price is about this morning, news from proper drug development. “with AVA6000 at 80mg/m2 in the ongoing Phase I trial. Following this review, the SDMC has recommended that the clinical trial continues as planned and escalates to the next dose of AVA6000 at 120mg/m2.” To explain that in simple language. The amount we’ve been giving test subjects isn’t killing them so we’re going to give them more.

That sounds a little brutal but it is in fact how this end of drug development works. The limit to most cancer drugs is that what kills the cancers can also – and sometimes will – kill the patient. So, the search is always on for things that are more specific. This is where Avacta is working.

In any drug development, a Phase I trial is really to try and see whether the drug being given to people kills them. OK, normally not quite so dramatically stated as that but that is the gist of it. Take students earning beer money, give them the drug, see if they fall over. If not then up the dose and try again. Hopefully, it’s possible to give them enough, without dire effects, to be able to treat the target problem.

Phase II then checks that the drug does treat or cure in the manner the lab tests suggested, Phase III then checks with lots and lots of people that there are no rare or weird effects. Don’t take this as an accurate guide but in plain language, it’s a good enough guide.

So, Avacta has been able to show in the lab that there’s something interesting here. The result today is that it’s not directly and immediately noxious. So, the testing can proceed.

This might not sound like a terrific advance given the length of the road to travel but it is indeed an advance. Failure at any point kills the project, success just allows the next question to be asked.

The question for us as traders is how long will this affect on the share price last and how far do we think it’s going to go?

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