Avacta Group Regulatory News (AVCT)

23 January 2015

Avacta Group plc

("Avacta" or "the Group")

Pre-close trading update

and

Commercial partnership with Norwegian biotech D'Liver

Avacta Group plc (AIM: AVCT), the global provider of proprietary diagnostic tools, consumables and reagents for human and animal healthcare, provides the following pre-close trading update.

Avacta Life Sciences

· Strong growth in the custom Affimer sales pipeline

· Affimer order intake of approximately £0.1 million to date

· Strong custom Affimer business development team in place

· 80 online Affimer catalogue line items developed

· Commercial partnerships signed with Agrisera AB and D'Liver AS

· Additional Affimer patent granted in the US

· Solid progress of the internal validation of Affimers as therapeutics

Avacta Animal Health

· Clinical study of the effectiveness of the canine lymphoma test published

· US commercial and operational facilities being established

· Canine lymphoma test launched in the US market

Avacta Analytical

· Initial direct sales capability in US market secured

· Europe pipeline strong

· Two new OPTIM variants launched

The Company will announce Interim Results for the six months ended 31 January 2015 on Tuesday 28 April 2015.

Avacta Life Sciences

The Group completed its recruitment of a strong custom Affimer sales team during October 2014, including the appointment of Senior Sales Executives from Abcam plc and Cell Signalling Technologies, Inc., the two market leading antibody suppliers. During the first three months since these appointments were completed, the sales pipeline of enquiries for custom Affimers has grown rapidly. Order intake of custom Affimer services to date is approximately £0.1 million.

The on-line catalogue of Affimer products, which was launched during September 2014 with approximately 40 line items, has been extended quickly with more than 80 line items today. The Board now expects this to exceed the internal target of 100 line items by the end of the financial year. The catalogue product development strategy is focusing on several key application areas where antibodies struggle to meet users' required performance levels, and where antibodies are not available or cannot be generated. The Board's view is that the growing validation from third party take up of the Affimer technology, a critical mass in the number of line items in the on-line catalogue and the effective delivery of the Group's marketing programme are crucial to growing significant revenues from the catalogue. The Group has signed a number of commercial partnership agreements and further strategic alliances with both distribution and product development partners are in discussion.

One such partnership recently announced is with Agrisera AB ("Agrisera"), a Sweden based company and well-respected, high quality provider of research tools for plant sciences research. The Group and Agrisera have entered into an agreement to develop Affimer based depletion products with improved performance and economics compared to the current systems. The agreement provides for commercialisation to be carried out by Agrisera, the market leading vendor of antibodies in the protein sciences market, with a revenue share flowing back to the Group.  

Solid progress has been made in generating important data that will help support efforts to secure licensing deals for Affimers as therapeutics. Early development targets were to demonstrate that production of Affimers could be scaled up easily, that bi-specific Affimers could be generated and produced with good yield and that Affimers which bind a selected therapeutic target could be generated from the Group's substantial Affimer library. All of these development targets have been achieved and work is continuing to address the next set of therapeutic development targets.

The Group also announces today a partnership to develop Affimers with therapeutic applications with Norwegian biotech, D'Liver AS ("D'Liver"). D'Liver is a contract research organisation with world leading expertise in drug/liver interactions. D'Liver's world recognised expertise in the area provides drug developers with insights into key properties to get new pharmaceuticals to market faster and with better safety profiles.

Details of the technical programme and commercial terms are confidential, but the Group is entitled to share in future revenues arising from commercialisation of the Affimers that are developed by D'Liver, or future partners, via a royalty model.

The period also saw the granting of a patent in the US which covers improvements to the original Affimer protein scaffold. This patent application is also nearing grant in Europe and a continuation of this patent is being considered for further grant in the US.

Avacta Animal Health

Whilst currently the business has predominantly a canine allergy capability, future growth is expected to be delivered through the provision of newly developed diagnostic tests delivered as laboratory services or sold as diagnostic testing kits to third party laboratories.

The first new diagnostic test, a canine lymphoma test ("cLBT"), was launched in the UK during 2014 and has seen encouraging early take-up. The Group has now launched this test in the US and is in the process of establishing commercial and operational facilities in Missouri, US. The Group is targeting a partnership with a significant US veterinary testing services supplier for the longer term.

A key aspect to the potential success of this or any diagnostic test is the independent validation of the science behind the test through scientific papers and the support of independent key opinion leaders. The recent publication in the Journal of Veterinary and Comparative Oncology in collaboration with Dick White Referrals in the UK and Dierenkliniek Korte Akkeren in the Netherlands is very supportive of the scientific depth and rigor of the Group's cLBT. This detailed clinical study showed that the Group's unique serum test for canine lymphoma not only performs better than clinicians' assessment in the diagnosis of the disease and identifies sooner those animals which come out of remission after treatment, but also has prognostic value. The roll out of the cLBT in the US is supported by several independent key opinion leaders including Professor Carolyn Henry at the University of Missouri Veterinary School.

Further growth is expected to be delivered through additional new tests, such as a canine pancreatitis test.

Avacta Analytical

During 2014, the Group negotiated the cessation of exclusivity in the distribution agreement for the key US market with Pall/ForteBio and, with effect from 1 February 2015, Avacta Analytical will sell OPTIM directly in that market. The Board considers that, in the current structure, the significant potential of OPTIM in the US market is more likely to be realised through direct selling rather than through a distributor. The appointment of the Group's first US based Sales Executive has been secured and a sales pipeline is being built through direct marketing efforts.

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

"I am pleased with the overall progress of the Group and delighted with the excellent development made with Affimers to date. Material revenues in this first full financial year of Affimer sales and strategic commercial partnerships, to independently validate the strength of the Affimer technology, were the two primary performance targets that were set and the Board is confident of these targets being met.

"The custom Affimer sales team has been established and is first rate. Their experience and networks have generated rapid growth in the sales pipeline for Affimers. The Group has seen a great deal of interest in the Affimer technology emphasised by the recently signed commercial agreements with two world leading partners in their respective fields, Agrisera and D'Liver, for the development and commercialisation of products based on the Affimer technology. These partnerships are important validation of the technology as well as long term revenue opportunities and I am pleased to say that the pipeline of further opportunities at the strategic level is strong.

"The number of line items on the online Affimer catalogue, which is expected to generate high margin recurring revenues in the longer term when the catalogue reaches a critical mass, is being built more quickly than originally envisaged which is a reflection of good progress made in establishing efficient high throughput processes and facilities.

"I am very pleased that Avacta Animal Health is launching its first major test outside of allergy in the US market on the back of encouraging take up of the canine lymphoma test in the UK market. I expect to see near term growth in this part of the Group driven by this, and other, new diagnostic test kits and services.

"It will take a little while to build our direct sales capability for Optim in the key US market, but it is important to establish that capability in order to drive the sales growth that we expect for this product. Even with a small team we have seen better sales in Europe through a direct route than with distributors and the very early indications are that this will be the same in the US in due course.

"I look forward to providing the market with further updates through the coming months."

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About Avacta Group plc - www.avacta.com

Avacta Group plc is a global provider of innovative technologies, consumables and reagents for the life science markets, from drug discovery to diagnostics. Avacta operates through three divisions: