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sarahstevens, out of curiosity, any comment on why you have put next to no emphasis on Avacta's therapeutic division?
I would also point out that the review, whilst lengthy and detailed, covered only the covid lft opportunity, and appears on the surface of it to be an attempt to steady the ship on that front, or to present a case for a diagnostics split(?)
Curious how sarahstevens first ever post in early September also makes a reference to splitting the division:
"First time I saw this posted was early August on Avacta's Twitter feed. Firstly, good to see them sponsoring something (this is paid-for rather than an invite slot) which hopefully means they have a product to actively sell to the industry. I see they're now using the Avacta Diagnostics logo on the website instead of Avacta's standard one. Not a big deal but clearly actively pushing Diagnostics as its own division now. Will be interesting to hear them speak about their own LFTs."
"There’s a clear risk that the market will not exist once the pandemic is dealt with but there are plenty of indicators that point to the idea that the market will exist for the foreseeable 5 years+."
So a "clear risk that the market will not exist once the pandemic is dealt ".
"it’s wildly competitive, the consumer market will likely be entirely price-driven and, if they’re not included in approved government lists, they won’t have access to a key distribution channel that others will."
Hmmm, so HUA will result in lower profit per test.... Still at least we have the govt to fall back on....
I largely agree with her views as it paints both sides of the opportunity, but I would also point out that while you have gone all gooey over her thoughts some here were just as happy to vilify me for highlighting the exact same risks months ago.
Thanks for your time in sharing these thoughts, Sarah. It’s valuable to hear from someone with your expertise.
While there are lots of frustrated holders, it seems to me that we don’t really have any strong indicators as to recent sales volumes. Results only covered up to end June, and as you say, AS and the rest of the board have no obligation to update shareholders or the market more often than twice annually. I suspect sales have been growing fairly strongly over the past couple of months. The reason we’re all excited about Friday is because that would be a really strong indicator of forthcoming sales.
For me, although I’m still down fairly heavily, I’m still confident in their diagnostic and especially their therapeutic offerings, and I’ll be holding. I’ve already got an overweight holding anyway, and won’t be topping up further, so as to manage my risk.
It actually looks like a bit of a deramp to me Mr Ripley
MIKODX seems to think he has a long wait to break even
I thought it was common knowledge here from a reliable source that we'll see £2.50 by friday
Thanks Sarah Stevens (or wise old owl). That was a real breath of fresh air after reading the general daily bile. Well balanced imo. GLA
What a moronic post. Who can’t remember why they invested? If you invested of so little thought you should just put your money in the fire
Can't remember why I invested here but I stupidly bought in at 205 and it's slumped ever since. I didn't invest much so not overly concerned, but still a decent amount. I suppose I've got a long wait before this even breaks even. Sometimes we have to learn the hard way, but I still have no doubt this will hit 200 again, but it could be a long wait.
Thanks for sharing these well laid-out thoughts! I may be mis-characterising your overall thesis, but if you invested based predominantly on a good long look at the SARS-CoV-2 LFT side of the business (as your shared analysis focuses on this), does it in your view underpin the current share price on it’s own? Or do you apportion a significant part of the value case to other parts of the business, albeit they might be less within your area of expertise?
Great read, good balanced arguments. I think the BBI partnership has been canned since they were bought out due to them not being able to meet costs (shows Al is aware that cost will be a primary factor) , but AS seems pretty keen to promote manufacturing capacity outside of UK which can be quickly scaled up.
Look at the logistics of getting tests to market with HGV driver shortages, manufacturing will need to take place close to demand, if we can have manufacturing bases in UK, spain, Asia etc if puts us at an advantage, a manufacturer only residing in far east or US will struggle to meet orders, govt ain't gonna charter planes forever, and alls gone quiet on that innova Welsh factory
This well thought through break down is worth a read.
Hi @sarahstevens Thanks for that excellent post , very welcome views , fair & balanced summary . No disagreement from me .
Would like to add - Avacta board made some significant hires last 12 months , big hitters employed also replaced just about all the scientic advisors . Plus engaged excellent Principal Investigator cancer experts to run AVA6000 clinical trials .
Proves Avacta board /CEO will do what it takes to deliver with the help of JV partners increased sharehoder value .
Will take time perhaps years away however might also be some short term reward for those that like to trade the SP .
Atracting some new additional institutional major investors would also not go amiss .
Also would not be surpised to see Avacta promoting the company via capital markets events in USA next year ( not for placement funds as not required ) but to increase asset profile awareness to a bigger investor audience then perhaps move towards a NASDAQ listing late 2022/2023 .
bump
Excellent post Sarah, thanks for sharing.
Worth noting that the growing pains for AffiDx will be hugely beneficial when bringing other diagnostic products to market. It wasn't an understatement that it has been a transformative period. They now have experience and partnerships in place for every step required. Not exciting for the short term, but it reduces the risk of relying on covid related earnings when expanding the business. Other profitable products will be launched that will continue to provide cash that can be used to fund the Tx side.
Sarah, in assessing high potential businesses, prior to Covid have you ever dealt with comparable situations where the route to market for a diagnostic company with a highly accurate product has been completely sabotaged by a government that is effectively putting obstacles in its way? What do you make of the Porton Down approval process and the fact that Mologic was prepared to sue U.K. Gov for “stonewalling” them?
This Company does my head in but I will be doubling my stake in the coming week. Always held and will continue to. I don’t really think it is 2 pronged, with a proper diagnostics business. I don’t think their heart has really been there and they don’t have the temperament the cut and thrust scale, logistics and politics. I get the felling that science and manufacturing are at odds.
I do however think that the therapeutics business could be the best punt I’ll ever have and I think what they’re doing is extremely clever.
@GJE - very valid. Am speaking from inexperience of the process. You are right, as AS says, it may well be that they've been great and other issues have made it a little slower.
@Muck - true though the Novacyt share price is below where it was at April last year and has fallen from highs of 1,200 to around 250 now. Avacta's performance isn't a million miles off.
@Wyndrum - I don't know because I haven't seen sales figures or managed to have any reliable indication of them. Normally when investing, we'd have a seat on the board so we can track progress monthly. Here we only see results biannually and it sounds as though B2B sales only began in 2H21.
I can't comment on the reasons why sales may be good or bad - my theory is that the demand is there and growing so if I were doing a pre mortem and sales don't materialise, I'd guess it would be because of operational issues (approvals, manufacturing etc.) or a heavily competitive, price-driven market. Again, I think operationally things look and sound good. I also think we have enough to differentiate.
Overall, I see a good product and good team leaning heavily into a growing market so I'm hoping (and expecting) sales materialise.
Sarah, do you see the Avacta) initial business sales as slow or what you would expect a few months into releasing the test? (I ask because it seems slow from what info I can gather given the high demand and shortages that exist.)
If it is (iyo) slow, do you think that is just a temporary manufacturing issue or lack of demand for specifically the AVCT product?
TIA
Lots of good points, although you only have to look at Innova and Novacyt to see that being first mover can mean much more than a little…
Great points, thanks. Just one point to pick on. You consider that having medusa19 drive the home use authorisation process to be a slip up, however, as AS has said himself they have done an outstanding job, and at this stage, considering the usual timeframes, couple with the potential delays associated with the pandemic, there is no evidence to suggest they have slipped up.
I see plenty in Avacta that leads me to believe they have the ability to compete and succeed in the short- to mid-term in the LFT market and think there’s plenty of upside from that alone.
I don’t worry much about the trolls or the criticism – I’d be more surprised if things went smoothly to be honest. Inflection points will come over time as landmarks are achieved but the business has a solid base and should grow steadily. Personally, I wouldn’t worry about the short term share price (I appreciate margin calls dictate otherwise sometimes!).
Team continued:
• AS has been too quiet for many on here. To my mind he has no obligation to go above and beyond the standard AIM disclosure requirements and has only disclosed information when required to. A CEO should act in the long-term interest of shareholders and stakeholders – not in the interest of bumping up the share price on any small piece of news.
• They’ve engaged Medusa19 to handle D2C sales, putting faith in people who are experienced in manufacturing and distribution to consumers – an area well outside their expertise. The founders of Medusa19 are shareholders in Avacta so they’ve engaged people who are doubly incentivized to make a success of this.
• The slip-up here appears to be allowing Medusa19 to handle some of the regulatory burden such as HUA, an area they’re unlikely to be experienced in. Regardless, there’s clear, strategic expertise added to the team here though it’s likely to be a point-in-time problem that may not have to be faced again.
• Other key partnerships with Abingdon (manufacturing), BBI (manufacturing) and Mologic (commercial & manufacturing) show that there are plans in place to scale the business rapidly once the correct authorisations have been received and demand is in place.
All in all, the team is difficult to comment on and it’s hard to know what’s happening behind the scenes. Clearly there has been some overpromising but to my mind no big red flags. They’ve identified where they’re lacking and added strong expertise to address issues bringing products to market. They now look to have a good balance of science, business, manufacturing & distribution.
Product:
• LFTs are a broadly homogenous product. Competitive advantage can be achieved through 2 areas: cost leadership (e.g. superior manufacturing) or differentiation (e.g. accuracy, more pleasant testing method, better operations). I have no insight as to whether Avacta would be a cost leader but they have three points of differentiation (no brain tickling, very accurate, UK manufactures).
It remains to be seen how the market values their differentiators but, personally, I’m placing a bet that they’ll be viewed positively and help Avacta win out against others.
Summary:
When I look at all the issues and delays so far, I see operational blips in a highly regulated market which I’d expect. I don’t see anything that undermines the fundamentals of this investment case. It’s a large, growing market where brand counts for little and first mover advantage counts for little. Success is likely to depend on long-run operational excellence through manufacturing and distribution and hopefully from product performance as well as ability to bring new products to market in the face of new variants and new viruses. They appear to be underpinned by exceptional science which has led to a better, more accurate, more credible product than others too.
For what it’s worth, I decided to write down some of my thoughts on Avacta below focusing on Diagnostics. I’m not a regular AIM investor but I do work in venture capital so invest in lots of early stage business (admittedly usually pre-product or pre-revenue) so have some experience in assessing high-potential businesses. We usually look across 3 key areas, product, market & team. I’m not going to touch on AVA6000 for now because the economics of drug development are well out of my wheelhouse.
Market:
• They play in a large global market estimated around $7bn that’s growing fast with growth estimates around the high single digit area (6% - 9%). There’s a clear risk that the market will not exist once the pandemic is dealt with but there are plenty of indicators that point to the idea that the market will exist for the foreseeable 5 years+.
• The government is moving away from costly inaccurate PCRs to cheaper more readily available lateral flows which look as though they’re here to stay. A huge shift in Avacta’s favour.
• There are shortages of supply in the market, partly as a result of supply chain disruption. Avacta have a product manufactured in the UK which reduces some of the supply chain risk.
• A large part of the buying in this space is likely to be from public bodies and they’ve achieved a level of approval through the NHS Microbiology Framework already.
So to my mind, they’re playing in a very big market, that is facing acute and immediate problems, they have potential differentiators in a busy space, they have some (unproven) differentiators and have already begun making relationships with public bodies to access large buyers in the space. On the flipside, it’s wildly competitive, the consumer market will likely be entirely price-driven and, if they’re not included in approved government lists, they won’t have access to a key distribution channel that others will.
We can’t change the intense competition nor the pricing but getting approvals and getting in the right channels are really dependent on the ability of the team to execute. To my mind it would be great if the team had brilliant eCommerce/D2C experience to ensure they have a strong go-to-market strategy…
Team:
• AS & team are scientists developing amazing biotech that clearly has a variety of use cases. I can’t comment on their scientific credentials but can comment on a couple of things.
• They have listed on the AIM and raised significant capital and have a few reputable institutions amongst their shareholders. None of that is easy and alone, that is a positive and an indicator of credibility. I think AS speaks and presents well at results too.