Avacta Group Regulatory News (AVCT)

3 April 2017

Avacta Group plc

("Avacta", the "Company" or the "Group")

Interim Results for the Period Ended 31 January 2017

Significant progress in all applications of Affimers

Avacta Group plc (AIM: AVCT), the developer of Affimer® biotherapeutics and research reagents, announces its interim results for the period ended 31 January 2017.

Highlights

Operational

· Excellent progress made with in-house immuno-oncology therapeutic programme: still targeting the clinic in 2019.

o Multiple therapeutic lead Affimers identified

o First animal efficacy study completed with positive results

o First PK studies completed with positive results

o Expansion of immuno-oncology pipeline underway

· Research partnership with Moderna continues to progress and expand to cover more targets.

· Collaboration agreement with Memorial Sloan Kettering Cancer Centre NY to generate Affimer CAR-T proof-of-concept data later in 2017.

· Affimer technology patent granted in Europe.

· Custom Affimer order book continues to grow - up 70% YOY.

· Multiple paid-for technology evaluations and collaborations now ongoing with:

o Four out of the top ten global large pharma and more than ten other biotech and pharma companies

o Eight research tools companies

o Several diagnostics companies including one of the top three

· Several technology evaluations underway that could lead to the first reagents license deal during 2017.

Financial

· Half year revenues increased 20% to £1.3m (£1.0m FY16) comprising of £0.5m (£0.3m FY16) from Avacta Life Sciences and £0.8m (£0.7m FY16) from Avacta Animal Health.

· Operating loss £3.9m (£2.0m FY16), with research and development costs increasing to £1.3m (£0.5m FY16).

· Reported loss £3.4m (£1.7m FY16).

· Cash balances £16.1m (£19.5m 31 July 2016).

Post-period highlights

· First immunogenicity study successfully completed on Affimer platform (see separate announcement released today)

o Demonstrated low immunogenic potential of Affimer platform vs positive and negative controls

o Multiple versions of the Affimer technology tested with human samples in industry standard assay

Alastair Smith, Chief Executive Officer, commented:

"During the period we made significant progress with our therapeutics programme, reporting positive results from the first in vivo studies. Additionally, we have today reported positive results from our first immunogenicity study of the Affimer platform using human samples. This is a critical data point supporting our conversations with potential pharma partners and keeps us on track to meet our objective to take the first Affimer candidate into clinical development in 2019.

We also continue to demonstrate the differentiating strengths of our Affimer technology in other key applications and this is now translating into a growing custom Affimer order book and paid-for commercial evaluations. We remain confident that this could lead to the first license deal for an Affimer reagent in 2017.

We expect to report on a number of significant value inflection points in the coming months and we look forward to keeping the market informed of our progress."

For further information from Avacta Group plc, please contact:

About Avacta Group plc - www.avacta.com

Avacta's principal focus is on its proprietary Affimer® technology which is a novel engineered alternative to antibodies that has wide application in Life Sciences for diagnostics, therapeutics and general research and development.

Antibodies dominate markets worth in excess of $50bn despite their shortcomings. Affimer technology has been designed to address many of these negative performance issues, principally; the time taken to generate new antibodies, the reliance on an animal's immune response, poor specificity in many cases, and batch to batch variability. Affimer technology is based on a small protein that can be quickly generated to bind with high specificity and affinity to a wide range of protein targets.

Avacta has a pre-clinical biotech development programme with an in-house focus on immuno-oncology and bleeding disorders as well as partnered development programmes. Avacta is commercialising non-therapeutic Affimer reagents through licensing to developers of life sciences research tools and diagnostics.

CHAIRMAN'S AND CHIEF EXECUTIVE OFFICER'S REPORT

Business Overview

The Group is targeting long term, significant value generation through in-house and partnered Affimer® therapeutic development programmes. The Company is also generating nearer term revenues from Affimer reagents for research and diagnostics addressing commercial opportunities where the Affimer technology has particular competitive advantages over antibody reagents.

Strong progress has been made in the Affimer therapeutics programme with positive results reported from the first in vivo studies that demonstrate efficacy, tolerability and suitable pharmacokinetics properties of Affimer molecules. There has also been significant growth in the in-house and partnered pipeline.

Substantial progress has also been made in demonstrating the performance and differentiation of our Affimer technology in key applications which is now translating into a growing custom Affimer order book. In addition it has led to a number of paid-for commercial evaluations, the first of which should conclude positively in 2017 with the third party taking the rights to the Affimer proteins for product development.

Avacta Life Sciences

The Group's principal focus is on its proprietary Affimer technology which is a novel engineered alternative to antibodies that has wide application in multi-billion dollar life sciences markets for diagnostics, therapeutics and as general research tools. Avacta's strategy is to build a profitable business, licensing Affimer technology into third parties' diagnostic and research product development pipelines, whilst generating valuable therapeutic assets both in-house and with partners.

Licensing deals are secured through technology evaluations. Successful evaluations have a good likelihood of leading to royalty bearing commercial licenses to develop and market products powered by Affimers. Multiple Affimer technology evaluations and collaborations are ongoing with four out of the top ten large pharma, over 20 other biotech and research tools companies and several diagnostics companies including one of the top three.

The order book for evaluations and other custom Affimer projects has grown 70% compared with the same period last year, which is an encouraging sign of increasing awareness of the technology and the positive effects of building solid technical marketing data to support business development.

The evaluation process may take six months to a year, or longer, depending on the nature of the application. Some of the many paid-for evaluations/collaborations that are now underway could lead to licensing for product development which is the principal objective. Others may lead to third party internal use only via a supply arrangement, or to repeated custom Affimer orders. Therefore it is essential to build the pipeline of evaluations and focus efforts on those third parties most likely to develop royalty bearing products for sale. Several of these ongoing evaluations are with third parties that could lead to the first reagent commercial deals during 2017.

The Company is collaborating with Mologic, a UK developer of rapid point-of-care tests - one of the three areas of initial commercial focus for the Company. This collaboration aims to demonstrate the benefits of Affimer technology in lateral flow tests and to develop novel Affimer-based diagnostic assays for human healthcare. Basic proof of concept in this application has been demonstrated and Avacta is now generating Affimer binders to a number of commercially valuable diagnostic targets, as well as making its Zika virus binders available, to support the development of commercial products. Work remains to fully demonstrate the performance of Affimer based lateral flow devices which will be carried out during 2017. Both companies will share in the future revenues from the commercialisation of the marketed diagnostics.

Therapeutic Update

Substantial progress has been made in the Company's in-house immuno-oncology programme and, post-period end, a major value inflection point for the technology was achieved - successful conclusion of the first immunogenicity of the Affimer platform trials using human samples. The Company has today announced positive results from its first immunogenicity studies which, when added to the positive preclinical efficacy data obtained in Q4 2016, considerably strengthens the case supporting partnering conversations with pharma and keeps the Company on track to take the first Affimer candidate into clinical development, targeted for 2019.

Multiple Affimer inhibitors of PD-L1, one of the better understood drug targets in immuno-oncology and therefore one of the lowest risk in terms of progression into the clinic, have been rapidly identified and characterised. The first animal studies, with an Affimer, of pharmacokinetics and efficacy in a mouse tumour model, have been completed with positive results and the expansion of the portfolio of immuno-oncology Affimer binders beyond PD-L1 is well underway.

The results of the efficacy study are important because they demonstrate, for the first time, that an appropriately formatted Affimer therapeutic shows serum residence time that was sufficient to see a clinical effect, which means that the Affimer proteins reached the site of action and were functional in vivo. It is a notable achievement, and an indication of the ease and speed with which Affimer therapeutics can be developed, data from these animal models was obtained within nine months of screening the library with the target.

The collaboration with Phoremost, a UK drug discovery company, has long term goals to discover and commercialise new drug targets, Affimer reagents and therapeutics. PhoreMost is using Affimers in tandem with its SiteSeeker technology to discover new drug targets and screen for small molecule therapeutics that act on these targets. In addition, this discovery programme will generate novel Affimers which could be used as reagents to assist in the drugs' development, or as therapeutics themselves. Under the terms of the agreement, Avacta is entitled to a royalty on all PhoreMost's revenues that are generated using Affimers. Early proof of concept with the Affimer library is promising showing Affimers clearly generating phenotypic effects in cell lines. We anticipate being able to update the market in more detail in the next twelve months.

The research partnership with Glythera, a UK biotech, to evaluate the use of Glythera's PermaLink™ conjugation chemistry in combination with Avacta's Affimer technology with the aim of developing a new class of highly targeted bio-therapeutics as a superior alternative to the established class of antibody drug conjugates (ADCs) is also progressing well. Initial work has focused on optimising the PermaLink attachment of cytotoxic agents to Affimer proteins that will be used in the early part of 2017 in cell killing assays to determine potency. As part of the collaboration Affimer technology has now been shown to withstand the harsh solvent environments required to optimise such conjugation chemistries and give tight control of the drug-Affimer ratio. Work is ongoing to demonstrate cell killing capability of Affimer drug conjugates. The Company will update the market further when the initial project from this collaboration concludes in mid-2017.

During the period the Company signed a collaboration agreement with the Memorial Sloan Kettering Cancer Centre NY to generate Affimer CAR-T proof-of-concept data. CAR-T immunotherapy is a form of cancer treatment in which the patient's own immune system T cells are modified to give them greater potency with which to attack cancer cells. The simple structure and biophysical properties of Affimers potentially provide significant advantages over antibody fragment technology currently used in CAR-T cell modification and the collaboration is intended to demonstrate a new class of CAR-T cell therapy that incorporate Affimer molecules which could lead to future licensing deals for Affimer technology into the CAR-T space. The Company expects to report on the progress with this collaboration later in 2017.

Avacta's established research partnership with Moderna continues to progress but the Company is restricted from providing any detailed updates at this time.

Good progress is being made in the Company's second in-house programme, which is focused on coagulation in collaboration with Dr Ramzi Ajjan at the Leeds General Infirmary. A range of Affimer molecules has been generated that modulate the clotting of blood and the breakdown of the clots via two different targets. These Affimer molecules are being characterised in Dr Ramzi's laboratory in vitro prior to planned use in in vivo models later in 2017 and 2018 with the objective of licensing these assets or taking them into phase 1 clinical trials in-house. The data show that different Affimer molecules affect blood clotting and clot breakdown to varying degrees in pure samples, in serum and in whole human and mouse blood. Work is ongoing to select the best candidates to take forwards for in vivo testing.

The Company also strengthened its immuno-oncology Scientific Advisory Board with the appointment of Professor Gerard Evan during the reporting period. Professor Evan's research focuses on the molecular basis of cancer. He is the Sir William Dunn Chair of Biochemistry and Head of Biochemistry in the University of Cambridge.

Avacta Animal Health

As previously reported, Avacta Animal Health has traded in line with expectations and ahead of last year. This improvement has been driven by increased sales in the core allergy business, including the recently-launched equine allergy test, and reflects strong sales and marketing efforts. Pet Allergy Week, now in its third year, and BSAVA form the basis of marketing efforts through Spring and early Summer along with a number of digital marketing initiatives.

Development work, primarily of algorithm-based tests, is expected to lead to product launches in the second half of this financial year which we anticipate will contribute to next year financially. We have added to our canine lymphoma blood test in cooperation with another highly respected laboratory and plan to expand further our allergy diagnostic range in the next financial year. Reflecting wider industry developments, we are investing in data-driven initiatives to augment our traditional assay development processes.

Financial Overview

Revenue for the six month period ended 31 January 2017 increases 20% to £1.26 million (2016: £1.05 million).

Revenue contribution from the Group's Affimer business, Avacta Life Sciences, increased 35% to £0.46 million (2016: £0.34m) and revenues from Avacta Animal Health, allergy and diagnostic testing business, increased 13% to £0.80 million (2016: £0.71 million).

Research and development costs from the expanded Affimer therapeutics programme, which are expensed through the income statement, increased to £1.28m (2016: £0.46m), as the Company continues to invest in the Affimer therapeutics programme.

Administration costs, which include costs associated with business development, operational delivery, administration, facilities, depreciation and share-based payment charges have increased to £3.50 million (2016: £2.21 million). The increase in costs reflects the growth in operations of Avacta Life Sciences as it scales up the resources required to deliver the Affimer business growth plans.

The Group's operating loss increased to £3.89 million (2016: £2.04 million) and the reported loss after taxation increased to £3.43 million (2016: £1.75 million).

The basic loss per share increased to 5.01p (2016: 2.61p).

The Group capitalised £0.71 million (2016: £1.21 million) of development costs, primarily relating to the Affimer technology reagents and diagnostics development programmes. These development costs are recognised within the total intangible asset value of £11.93 million (31 July 2016: £11.48 million).

There was a cash outflow from operations of £2.22 million (31 January 2016: £1.79 million) and a net inflow from investing activities of £3.83 million as funds were transferred from short term deposits (31 January 2016: outflow £1.61 million). The Group ended the period with £16.13 million net cash and short-term deposits (31 July 2016: £19.52 million).

Outlook

Since acquiring the patents to the first generation of the Affimer technology in 2012 the Company has consistently delivered on the major milestones it set out at the time having now: translated the patents into practice; established operational capabilities and two highly experienced teams in two new facilities for reagents and therapeutics development; begun to generate commercial traction in non-therapeutic markets with repeat custom and multiple technology evaluations on-going; established a rapidly growing drug development programme demonstrating the efficacy and safety of the Affimer technology as a therapeutic platform and securing the first drug development partnerships with Moderna Therapeutics and others.

Against this backdrop of consistent delivery with the Affimer technology the Company is well funded to carry out its current Affimer therapeutic development plans and to grow its revenues from research and diagnostics Affimer reagents.

The Company anticipates further strong newsflow during 2017 reporting on commercial progress in non-therapeutic applications and adding more detailed information about its expanding in-house drug development pipeline and progress in its research collaborations.

Progress has accelerated during the period and the Company is well placed to deliver on its strategy to build a profitable reagents business and develop a pipeline of valuable therapeutic assets and partnerships.

Condensed consolidated income statement

for the six month period ended 31 January 2017

Condensed consolidated balance sheet

at 31 January 2017

Total equity is wholly attributable to equity holders of the parent Company.

Approved by the Board and authorised for issue on 3 April 2017.

Condensed consolidated statement of changes in equity

as at 31 January 2017

Condensed consolidated statement of cash flows

for the six month period ended 31 January 2017

Notes to the condensed financial statements (unaudited)

for the six month period ended 31 January 2017

1) Basis of preparation

Avacta Group plc is a company incorporated in England and Wales under the Companies Act 2006.

The Board approved these interim financial statements for issue on 3 April 2017.

The interim financial information for the six months ended 31 January 2017 and the comparative financial information for the six months ended 31 January 2016 are unaudited. This information does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006.

The financial figures for the year ended 31 July 2016, as set out in this report, do not constitute statutory accounts but are derived from the statutory accounts for that financial year.

The statutory accounts for the year ended 31 July 2016 were prepared under IFRS and have been delivered to the Registrar of Companies. The auditors reported on those accounts. Their report was unqualified, did not draw attention to any matters by way of emphasis and did not include a statement under Section 498 of the Companies Act 2006.

The Board confirms that to the best of its knowledge that the condensed set of financial statements have been prepared in accordance with IAS34 'Interim Financial Reporting' as adopted by the EU.

The preparation of the interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Although these estimates are based on management's best knowledge of the amount, event or actions, actual events ultimately may differ from those estimates.

In preparing the interim financial statements, the significant judgements made by management in applying the Group's accounting policies and key sources of estimation uncertainty were the same, in all material respects, as those applied to the consolidated financial statements for the year ended 31 July 2016.

The interim financial statements do not include all financial risk management information and disclosures required in annual financial statements. There have been no significant changes in any risk or risk management policies since 31 July 2016. The principal risks and uncertainties are largely unchanged and are as disclosed in the annual report and accounts for the year ended 31 July 2016.

The Group experiences no material variations in performance arising due to seasonality.

2) Significant accounting policies

The condensed consolidated financial statements have been prepared on the same basis of preparation and using the same accounting policies as set out in the last annual report and accounts and in accordance with International Financial Reporting Standards ("IFRS"), including IAS 34 (Interim Financial Reporting), as issued by the International Accounting Standards Board and adopted by the European Union.

3) Segmental reporting

The Group has two distinct operating segments; Life Sciences and Animal Health. These are the reportable operating segments in accordance with IFRS 8 (Operating Segments). The Directors recognize that the operations of the Group are dynamic and therefore this position will be monitored as the Group develops.

All revenues have been generated from continuing operations and are from external customers. The Central overheads, which primarily related to the operation of the Group function are not allocated to the operating segments.

4) Earnings per share