Avacta Group Regulatory News (AVCT)

25 January 2016

Avacta Group plc

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

Pre-close trading update

Solid technical and commercial progress with Affimer® reagents and

initiation of a therapeutics development programme following a substantial fund raise

Avacta Group plc (AIM: AVCT), the developer of Affimer® biotherapeutics and research reagents, is today holding its Annual General Meeting at 2.00 pm GMT. In conjunction with this meeting the Company is pleased to provide a trading update ahead of its results for the six months ending 31 January 2016.

Highlights

· Strong pre-clinical R&D progress for lead Affimer drug candidates against the PD-L1 immune checkpoint target.

· Key collaboration initiated with Dr Ramzi Ajjan at the Leeds General Infirmary to carry out pre-clinical characterisation of Affimer drug candidates that modulate blood clotting in pre-clinical models.

· Affimer technology evaluations started with 13 large pharma and biotechs, including four of the ten largest pharma companies, and with several large diagnostics providers and numerous other commercial partners and academic institutes.

· Dr Mike Owen, ex- SVP and global Head of Research of Biopharmaceuticals R&D at GlaxoSmithKline, appointed as non-Executive Director and Chair of the Scientific Advisory Board.

· Appointment today of Dr Philippe Cotrel, ex-Commercial Operations Director at Abcam, as Chief Commercial Officer (see separate press release).

· Appointment of Mr Tony Gardiner as Chief Financial Officer.

· Successful £21m fund raising via a placing of ordinary shares to support an Affimer therapeutics development programme.

· Avacta Animal Health trading at expected levels with further product launches planned for the second half of the financial year.

· Half year revenue of £1.0m (£0.7m FY15) made up of £0.3m from Avacta Life Sciences and £0.7m from Avacta Animal Health.

The Company expects to announce its Interim Results for the six months ended 31 January 2016 on Monday 25 April 2016.

Dr Alastair Smith, Avacta Group Chief Executive Officer, commented:

"I am very pleased with progress in the period. It is good to see the number and quality of customers and partners that are evaluating the Affimer technology growing steadily as potential licensing and commercial relationships arising from these evaluations are key to maximising medium- and long-term value. We will continue to focus our resources on supporting these evaluation projects with partners who can deliver significant commercial opportunities in the longer term.

The additions to the Senior Leadership Team and to the Board are particularly important and I am delighted with the recent appointments.

During the coming months, we will update the market in detail on the progress of our two principal in-house therapeutic development programmes that are focused on immune checkpoint inhibitors for cancer therapies and on modulators of blood clotting. We also expect to establish new facilities in Cambridge for the expanding therapeutic development activity under Dr Amrik Basran, and later in the year to move into larger premises in Wetherby to support the Affimer reagents development and manufacturing operations."

Avacta Life Sciences

Following the Company's own progress in demonstrating the potential of Affimers as a therapeutic platform and the transformational therapeutic partnership that was established with Moderna Therapeutics in May 2015, Avacta successfully raised £21m net by way of a placing on 3 August 2015 with both existing and new institutional shareholders.

The proceeds will be used to accelerate the Group's in-house therapeutic programmes, focusing on oncology and blood clotting disorders; to support co-development partnerships; and to develop the therapeutic platform technology for key performance properties such as half-life extension, targeting and combination therapies. The primary strategic objective is to progress the first Affimer therapeutic into the clinic. This is expected to be achieved in approximately three years and this should be a significant value inflection point when it occurs.

Good progress has been made in identifying Affimer candidates that bind to and inhibit the biology of the first selected immune checkpoint target, PD-L1. A large number of such Affimer candidates have been identified and are now being evaluated to establish the strength of their inhibitory effect, their manufacturability and whether they can be formatted into appropriate drug-like structures.

The Company has also established a significant research collaboration with Dr Ramzi Ajjan, a consultant diabetologist and endocrinologist at the Leeds General Infirmary, to gain access to his pre-clinical and clinical models of blood clotting. Dr Ajjan has evaluated Affimer proteins with regard to their potential to bind to and modulate the behavior of fibrinogen, a key protein in blood clotting. A two year pre-clinical study has been initiated to study the effects of certain Affimer reagents on clot formation and breakdown.

Early data from both of these in-house programmes are encouraging and the Company will provide a detailed update on progress and set out the wider therapeutic development objectives around the time of the 2016 Interim Results.

Also during the period Dr Mike Owen was appointed to the Board as a non-executive director. Dr Owen was Senior Vice President and global Head of Research of the Biopharmaceuticals R&D Unit at GlaxoSmithKline and was responsible for initiating and rapidly growing GSK's robust pre-clinical and clinical therapeutic antibody pipeline during the last decade through in-house development as well as through acquisitions such as Domantis. Dr Owen brings extensive clinical trial, scientific and commercial experience to the Company in support of the therapeutics development strategy and he will establish and chair Avacta's Scientific Advisory Board which will provide guidance to the Affimer therapeutic development programmes.

The Company is also providing Affimer reagents as Life Sciences research tools via a custom Affimer reagent service and a catalogue of Affimer reagents addressing gaps in the antibody market. The fundamental benefits of the Affimer technology: high specificity; rapid generation of new binders; stability and robustness; ability to address targets which antibodies find difficult or impossible; and batch to batch consistency are proving successful in generating widespread customer interest. The Company has also now established a robust and semi-automated Affimer generation process that is routinely generating new Affimer reagents for customers and internal therapeutic programmes.

Since the commercial launch of Affimer reagents late in 2014, the custom Affimer reagents sales pipeline has grown strongly, order intake continues steadily and a number of additional Affimer technology evaluations are underway. The Company is engaged with a wide range of customers including large pharma and biotechs (including several of the top ten pharmaceutical companies), a number of diagnostics providers, several large bioprocessing and chromatography companies, and several EU, US and Asian academic and research institutes.

A key aspect of the business model is that a proportion of these custom Affimer projects and evaluations will lead to longer term commercial partnerships leading to payments for exclusivity, development milestones and longer term royalties on sales of Affimer containing products. The Company is negotiating a significant number of such commercial partnerships although these are taking longer than anticipated to complete.

Having achieved good initial commercial traction, the Company has today announced that it has appointed a Chief Commercial Officer to build on this early success, lead the commercial strategy and business development activities, and to drive the commercialisation of the Affimer technology. Dr Philippe Cotrel has joined Avacta from Abcam where he was Commercial Operations Director and was responsible for all sales and marketing activities, successfully growing revenue from £36.7m to £144m over a 7-year period. Please see our separate press release for more details of his appointment.

The Company has also established relationships with key opinion leaders (KOLs) in the first area of product development focus - reagents to address researchers' needs and the study of the ubiquitin proteasome system; a major area of drug and diagnostics development. These KOLs include Professor David Kommander of the Laboratory of Molecular Biology in Cambridge, Professor Sir Philip Cohen and Professor Dario Alesi of the Center for Protein Phosphorylation and Ubiquitylation in Dundee. These KOLs not only provide world leading capabilities for evaluating the performance of Affimer reagents, but also provide vital intelligence as to the key targets that are, or will be, important commercial opportunities for the Company.

The Company has also invested in the generation of applications and technical data supporting the competitive advantages of Affimer research reagents both in-house and with customers and collaborators. This has culminated in the publication of peer-reviewed articles which are important independent validation of Affimer reagent performance. For example, the HIF-1α/p300 protein-protein interaction that plays a key role in tumour metabolism and thus represents a high value target for anticancer drug-development, has been studied by researchers using Affimers to identify novel binding regions on the surface of p300 to inform future drug design and this work was published during the period1.

Avacta Animal Health

Trading in Avacta Animal Health was in line with our expectations. Further product launches are expected in the second half of the year which, along with further allergy offerings, will contribute to additional revenue from the start of the next financial year.

Future developments will include the Group's Affimer technology to help achieve market leading performance in a number of tests.

Financial

As the Company commercialises its Affimer technology, the variety and structure of commercial agreements that may be entered into is becoming clearer. Revenue recognition of upfront and other payments received will be spread over the relevant period as defined by obligations set out in the commercial agreements. Whilst not impacting cash flows from such agreements this will provide visibility of revenues as the Company grows.

As a result of this and the timing of commercial partnerships the Company now expects revenue for the full year to be approximately £2.5m.

1 Kyle HF et al. 2015 Oct;11(10):2738-49. doi: 10.1039/c5mb00284b.

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Notes to Editors

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 oncology and bleeding disorders as well as several partnered development programmes. Avacta is commercialising Affimer reagents through custom Affimer services to provide bespoke solutions to customers and via a growing on-line catalogue of Affimer reagents.