Avacta Group PLC (LON: AVCT) has been working mightily to produce covid tests. That’s fair enough, we were in the middle of a pandemic and governments were spraying money at anyone at all who could produce covid tests. This market is now rather disappearing. Restrictions are coming off in many countries, free tests being handed out like sweeties are going the way of the dodo. That means an absence of vast government contracts to produce covid tests of course.
So, we could expect a decline in interest in companies like Avacta which have been trying to make those covid tests. This is true of Genedrive and Abingdon Health for example, as we’ve noted before. Those latter two companies announced that they’d applied for CE Marks for their tests, the hare prices bounced, then that has all faded away as the orders for the test failed to flood in.
Avacta is affected by this – there’s a relationship between Avacta and Abingdon about such tests for example – but Avacta also has another business. Rather than being, as some testing companies have been, something set up to ride the testing wave Avacta was diverted by that desire for tests, not created by it.
That, well, we might call it a “real one”, business within Avacta is currently being used to try to design a cancer therapy drug. The background problem is that we know very well how to kill tumours. Unfortunately, the most obvious methods also kill the patient – what’s toxic to a tumour often is toxic to a human. So, the grand game is to work out either how to deliver the toxicity only to the tumour, or to only activate the toxicity when it arrives at the tumour.
It’s this second approach that Avacta is working on. Modifying an extant drug so that it is only “turned on” when it arrives at said tumour. This then steps around the problem of getting enough of the toxic drug into the tumour without having it floating around at such concentrations and killing the patient.
Well, OK, that’s the idea. But this is the thing about such medical development ideas. They take years to get to market. The current stage is Phase I. Stripped of all detail this is where Avacta shows that it doesn’t kill the patients directly. Phase II is to show it actually cures the ailment. Phase III shows there are no or few side effects in a wider treatment pool. Only then can a licence be granted for general use and so sales start.
At which stage what is Avacta worth? The truth being that perhaps whatever part of the valuation is attributed to covid tests should now be disregarded or even disposed of. Avacta’s an early stage pharmaceutical development company and should be valued – and only valued – as such.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage . 68 % of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money .
Tim Worstall is a freelance writer specialising in economics and the financial markets.