RE: Thoughts18 Oct 2020 12:27
Myles paper which I shared the to earlier has this to say on the matter:
In previous notes, we have suggested that the global market for a high quality LFT (that is of high enough sensitivity and specificity to be used for general population screening) could be several billion units per annum. In recent months, it has become apparent that, on a worldwide basis, demand could significantly exceed our initial estimate. The UK’s Project Moonshot, for example, is aiming to test up to 10 million people per day by early next year. Now consider that the UK population equates to less than 0.9% of the global population.
Avacta itself has been more conservative and suggested that the UK market (alone) could be 120 million tests per month. It is now being reported in the UK press that Avacta’s LFT will play a central role in Project Moonshot.12 Last week, a document posted on the UK Parliament website also validated the rumour that the Government is interest in both Avacta’s LFT and BAMS test.13 It is thus entirely reasonable to assume that the 120m per month target market that the Company has suggested in recent presentations, has been guided by what the UK Government itself has requested Avacta to manufacture.
In light of our assumptions set out in our 24.06.2020 Update Note of £10 per test and a profit before tax margin of 30% (which we still stand by), it is understandable why Avacta is currently valued at £460m, despite not having commenced sales of any COVID-19 focussed products.
If Avacta successfully completes the tech transfer to BBI, and clinical validation is in line with management’s expectations, then the global market for such an LFT (namely, one that is accurate enough to be effective for at- home use) would be multiples of the UK market. And, if the tech transfer is successfully completed, that would signify that a manufacturing blueprint has been created, that could then be rolled out to multiple more manufacturers, in the UK and overseas.
With regards to competition, we feel that the total addressable market is so vast that a dozen high quality LFTs could all thrive and record substantial sales over the next 1-2 years. As such, our investment thesis for Avacta (specifically with regards to its SARS-CoV-2 LFT) is absolutely not impacted by emerging LFTs from other diagnostics players. As it stands, however, there remain very few quality LFTs in existence.
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