Shares in life sciences groupAvacta(LSE: AVCT)have jumped by asmuch as a quarter today after the company announced that it hadentered into a collaboration, licensing and option agreement with Moderna Therapeutics Inc.
The deal will seeModerna make an upfront payment of $500,000 to Avacta in order to gain access to AvactasAffimersrange.
Affimersareengineered proteinsthat mimic the specificity and binding affinities of antibodies.Avacta has developed over 90Affimerproducts that it currently offers for sale. Total order intake for Avactas customAffimersto the end of April was 0.25m.However, to the end of April, revenue contribution from AvactasAffimerbusiness wasnegligible.
Big news
Its clear that todays deal is big news forAvacta as it effectively triples the companys 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 toAvactas Chief Executive, Alastair Smith:This agreement represents a significant opportunity for Avacta with tangible,near-termrevenues from upfront payments and research services, with additional milestone payments and royalties on future sales of therapeutics. It is a transformational deal forAvactaandAffimers.
Building momentum
AvactasAffimersare not the companys only revenue-generating asset, but they are the companys most exciting. Avacta also runs an Animal Health business that reported revenues of0.73m for the six months to 31 January 2015.
But its AvactasAffimerbusiness thats really set to generate growth over the next few years. Over the past twelvemonths, the businesses momentum has really started to build. A number of deals have been signed with other biotechs and Avacta has doubled the number ofAffimerproducts it has on offer for sale.
Avacta isfocused on providingAffimersto address gaps in the antibody. These gaps have been created by poor existing antibody performance. And the size of Avactas potential market is huge.
Its 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 2018Avactacould be trying to take on a $150bn market with itsAffimerproducts.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-fightingdeath-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 ofAffimerproducts. 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 tocurrent 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, its unclear how todays 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.
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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.