Avacta poised for growth

Diagnostic tests and testing equipment supplier Avacta continues its steady progress towards break-even but it would have been a step or two closer but for some manufacturing issues which delayed the release of a new product.

Revenue in the six months to the end of January shot up to £1.72m from £1.00m a year earlier.

Loss before tax narrowed to £0.51m from £0.60m at the interim stage last year, while loss per share contracted to 0.02p from 0.03p the year before.

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The Avacta Analytical division, which is aimed at reducing the costs and risks associated with biopharmaceutical drug development, shipped and installed thirteen of its Optim 1000 units during the reporting period, which contributed to a 141% increase in revenue from that division to £0.99m (2011: £0.41m).

Within the Avacta Animal Health division, revenue from the veterinary diagnostics service business grew by 24% to £0.73m from £0.59m the year before, but could have been more, but for technical issues encountered in the manufacturing scale-up of the plastic consumable cartridge for the AX.1 rapid blood testing system, which delayed its commercial launch into the veterinary market.

The group expects the cartridge will be released before the end of the current fiscal year, which runs to the end of July. However, broker Panmure Gordon was dubious about whether the launch would come in time to have much effect on this year's numbers.

"Although technically it is possible for AX-1 to launch in June or July, we are viewing the first few sales to be akin to beta site placements which will not generate a lot of revenues. As such we remove AX-1 related revenues from our forecasts," the broker said.

Panmure Gordon is now forecasting a loss per share for the full year of 0.03p, versus a previous forecast loss of 0.01p.

The broker did add, however, that progress is evident in many parts of the business, a view echoed by management.

"The two core business are moving soldly forward and we are making good progress towards break-even," Dr Alastair Smith, Chief Executive Officer and founder of Avacta told Sharecast.

"The real excitment going forward is in the area of diagnostics," he added.

"We see significant growth potential with the expansion of the AX.1 veterinary test menu expansion. Obviously, the more things vets can use it for, the more times they will use it," Dr Smith explained.

On top of that, the group has its recently acquired diagnostics business Aptuscan, for which it has high hopes. The acquisition takes Avacta into the field of "affirmers", molecules that have an affinity for, or are able to bind to, other molecules or "targets" of interest.

"The fact is, any one drug does not treat all patients well. That is where companion diagnostics come in; the US Food and Drug Administration [FDA]is laying down rules which will require that all drugs delivered to market [in the US] from 2015 must have been tested with companion diagnostic tools in order to determine which patients will respond well to a particular drug," Dr Smith noted.

"Furthermore, the FDA is insisting that the same diagnostic platform must be used throughout the whole development process, which is great for us," he added.

Mindful, perhaps, of the problems the company has experienced with the launch of its AX.1 cartridge, Dr Smith warned that there is still an execution risk associated with this and the group's other development ventures.

"Time is always against you. Getting product to market on time is crucial. We need to monetise our technology," Dr Smith asserted.

"The key thing, though, is that we are fully funded, and aiming to accelerate growth," he concluded.

Although Panmure Gordon reduced its price target for the shares from 1.90p to 1.75p following the update (while reiterating its "buy" recommendation), the market gave the trading statement the thumbs-up, with the shares hardened to 0.81p from 0.76p overnight.

Merchant Securities, meanwhile, which has no rating for the shares, said Avacata "looks well-poised to progressively deliver revenues from its two main divisions through 2012/2013."

"The addition of the recently acquired non-antibody affinity reagent platform should help contribute to assay development for the AX.1, and help the Analytical division enter the high value drug and biomarker discovery market with new, highly selective protein microarray tools," Merchant Securities anakyst Robin Campbell concluded.

JH