REG - Avacta Group PLC - Preliminary Results
25/04/2023 07:00
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RNS Number : 2982X Avacta Group PLC 25 April 2023
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constitute inside information as stipulated under the Market Abuse Regulations
(EU) No. 596/2014 as it forms part of UK domestic law by virtue of the
European Union (Withdrawal) Act 2018 ('MAR'). Upon the publication of this
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25 April 2023
Avacta Group plc
("Avacta", the "Group" or the "Company")
Preliminary Results for the year ended 31 December 2022
A period of continued significant progress
Avacta Group plc (AIM: AVCT), a life sciences company developing innovative,
targeted oncology drugs and powerful diagnostics, is pleased to announce its
unaudited preliminary results for the year ended 31 December 2022.
Operating highlights
Therapeutics - clinical and pre-clinical progress
· Avacta's lead pre|CISION™ programme, AVA6000 - a tumour
microenvironment activated form of a chemotherapeutic agent, doxorubicin:
o The first-in-human Phase 1 clinical trial (ALS-6000-101) progressed
through the dosing of four cohorts (80 mg/m(2) up to 200 mg/m(2)) following
positive reviews of safety and tolerability data.
o Pre-clinical data regarding AVA6000 was presented at the American
Association for Cancer Research ('AACR') 2022 Annual Meeting and the
Theranostics FAP Summit.
o The US Food and Drug Administration ('FDA') granted Orphan Drug
Designation ('ODD') to AVA6000 for treatment of soft tissue sarcoma.
· The next pre|CISION™ drug candidate, AVA3996, a tumour-targeted
proteasome inhibitor based on bortezomib, was selected for pre-clinical
development aiming for an Investigational New Drug Application in late 2023 to
2024.
· AffyXell Therapeutics ('AffyXell'), the joint venture between Avacta
and Daewoong Pharmaceutical ('Daewoong'):
o Entered into collaborations with Biocytogen, a Chinese company
specialising in developing new biological drugs, and with the Korea
Non-Clinical Technology Solution Center ('KNTSC').
o The strategic partnership with GenScript ProBio, a leading
biopharmaceutical manufacturer was expanded.
o Successfully completed a funding round to advance its lead mesenchymal
stem cell ('MSC') programme towards the clinic, and to develop its wider
pre-clinical pipeline of cell therapies.
o Avacta's shareholding in AffyXell increased to 19% following the
triggering of a milestone equity payment of £3.60 million.
· LG Chem Life Sciences ('LG Chem'), the life sciences division of
the South Korean LG Group, exercised its renewal option as part of the ongoing
collaboration with Avacta, triggering a licence renewal fee payment to Avacta
of $2 million.
· The Therapeutics Division relocated in April 2022 to new
facilities at Scale Space, in Imperial College's White City Campus in London,
bringing together the research and development teams in a single site.
Events after the reporting period
· Announced the completion of the fourth dose escalation cohort of
the Company's Phase 1 clinical trial (ALS-6000-101) in January 2023.
· Analysis of tumour biopsy material shows that the active
chemotherapy, doxorubicin, is being released in the tumour microenvironment,
confirming the tumour-targeting potential of the pre|CISION™ technology.
· In February 2023, hosted a Science Day for fund managers and
analysts providing a detailed review of the ongoing Phase 1a clinical trial
(ALS-6000-101) and update on preclinical programmes.
· First patient was dosed in fifth cohort of AVA6000 Phase 1a dose
escalation study at 250mg/m(2) in April 2023
· Announced the opening of the first two US clinical investigator
sites for patient enrolment.
· Presented pre-clinical data regarding AVA3996 at the AACR 2023
Annual Meeting.
Diagnostics - Significant progress towards establishing a fully integrated in
vitro diagnostics business with first transformational acquisition
· Through its Diagnostics Division, the Group initiated a long-term
'buy and build' strategy in the fragmented European diagnostics sector with a
vision to build a substantial in-vitro diagnostics ('IVD') business, with
global reach, serving centralised pathology laboratories in hospital settings
and decentralised testing in GP clinics, pharmacies and by consumers
themselves.
· In October 2022, the Group acquired Launch Diagnostics, a leading
independent IVD distributor serving hospital pathology laboratories in the UK
and France for an initial cash consideration of £24 million payable upon
completion, in addition to consideration for other short-term non-operating
assets of £0.9 million.
· Avacta Diagnostics built an extensive pipeline of further
acquisition opportunities to feed its M&A-led growth strategy.
Financial and Corporate highlights
· In October 2022, Avacta completed a fundraise of £61.3 million
(gross) through a combination of:
o £55.0 million senior unsecured convertible bonds issued at a 5% discount
from a fund advised by Heights Capital Ireland LLC (equating to £52.25
million post-discount).
o £9.0 million through a placing to new and existing shareholders and open
offer
· Revenues of £9.7 million (2021: £2.9 million).
· Adjusted EBITDA loss (before non-cash and non-recurring items)
of £15.1 million (2021: £21.7 million).
· Operating loss of £32.6 million (2021: £29.1 million).
· Reported loss from continuing operations of £39.5 million
(2021: £26.4 million).
· Loss per ordinary share from continuing operations of 15.5p
(2021: 10.6p).
· Cash and short-term deposit balances at 31 December 2022 of
£41.8 million (31 December 2021: £26.2 million).
· Dr Christina Coughlin, a medical oncologist and immunologist and
Chief Executive Officer of CytoImmune Therapeutics, Inc., appointed as
Non-executive Director to the Board of Directors of Avacta in March 2022.
Dr Alastair Smith, Chief Executive Officer of Avacta Group plc, commented:
"I am very encouraged by the favourable safety data emerging from the ongoing
phase 1a dose escalation study of AVA6000, which has confirmed the tumour
targeting potential of the pre|CISION™ platform. We look forward to starting
the dose expansion part of the phase 1 study later this year.
"The potential of the pre|CISION™ platform to create a pipeline of better
tolerated chemotherapies and improved outcomes for patients has been further
evidenced by the AVA3996 pre-clinical data recently presented at the 2023
American Association for Cancer Research Annual Meeting. These data not only
support the pre|CISION™ mechanism of FAP activation, but also open up the
possibility of treating solid tumours with a proteasome inhibitor for the
first time, which would greatly expand the size of the market for this form of
cancer therapy.
"I am delighted with the ongoing integration of Launch Diagnostics into the
Avacta Diagnostics division following our acquisition of the largest
independent in-vitro diagnostics distributor in the UK in October 2022. This
is a first step towards our vision of building a fully integrated in-vitro
diagnostics company supporting the healthcare professional and broadening
access to diagnostics for consumers via a careful, disciplined M&A led
growth strategy.
"The progress made during 2022 has positioned Avacta for further strong growth
during 2023 and I look forward to updating the market fully as we hit key
milestones across the Group."
- Ends -
For further information from Avacta Group plc, please contact:
Avacta Group plc Tel: +44 (0) 1904 21 7070 www.avacta.com (http://www.avacta.com)
Alastair Smith, Chief Executive Officer
Tony Gardiner, Chief Financial Officer
Michael Vinegrad, Group Communications Director
Stifel Nicolaus Europe Limited (Nomad and Broker) Tel: +44 (0) 207 710 7600
Nicholas Moore / Nick Adams / Samira Essebiyea / Nick Harland / Dhiren www.stifel.com (http://www.stifel.com/)
Suares / William Palmer-Brown
FTI Consulting (Financial Media and IR) Tel: +44(0) 203 727 1000
Simon Conway / Alex Shaw Avacta.LS@fticonsulting.com (mailto:Avacta.LS@fticonsulting.com)
Zyme Communications (Trade and Regional Media) Tel: +44 (0)7891 477 378
Lily Jeffery lily.jeffery@zymecommunications.com
(mailto:katie.odgaard@zymecommunications.com)
About Avacta Group plc - www.avacta.com (http://www.avacta.com/)
Avacta Group plc is a life sciences company working to improve people's
health and well-being through innovative oncology drugs and powerful
diagnostics. Operating through two divisions, Diagnostics and Therapeutics,
the Group's mission is to provide professionals and consumers with solutions
that improve healthcare, fitness and well-being.
Avacta's Therapeutics Division, a clinical stage oncology drug innovator, is
building a wholly owned pipeline of novel Affimer(®) immunotherapies and
pre|CISION™ tumour targeted chemotherapies. This approach is designed to
address the lack of a durable response to current cancer immunotherapies
experienced by most patients and reduce the severe systemic toxicities caused
by chemotherapies. There are five programmes in the pipeline as well as
several global research collaborations and licensing
partnerships. Avacta's lead programme, AVA6000, is a pre|CISION™
tumour-targeted form of the established chemotherapy doxorubicin. AVA6000 is
in Phase I clinical trials in patients with locally advanced or metastatic
selected solid tumours.
The Affimer(®) platform is an alternative to antibodies that has been
designed to address many of the drawbacks of antibodies which, despite their
shortcomings, currently dominate the immuno-diagnostics and
immuno-therapeutics markets.
The pre|CISION™ tumour targeting platform can be used to modify a
chemotherapy in order to selectively release the active drug in tumour tissue
thereby reducing the systemic exposure that causes damage to healthy tissues.
pre|CISION™ modified chemotherapies are designed to reduce the side effects
and improve the overall safety and therapeutic potential of these powerful
anti-cancer treatments.
Avacta's Diagnostics Division develops and supplies a broad range of
in-vitro diagnostic (IVD) solutions. The Division is growing rapidly through
an M&A strategy to deliver a global scale IVD business providing market
leading solutions for healthcare professionals and consumers to inform
treatment and monitor health and well-being. In October
2022, Avacta acquired Launch Diagnostics which serves the hospital
pathology laboratory market in the UK and Europe. Avacta Diagnostic's
research and development centre in Wetherby, UK uses its proprietary
Affimer(®) platform to differentiate immunodiagnostic products to provide
marketing leading performance.
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Chairman's Statement
I firmly believe that our pre|CISION™ and Affimer(®) technology platforms
have the real potential to deliver an extensive pipeline of oncology drugs
that will make a meaningful difference to cancer patients' lives. The AVA6000
clinical data to date is looking very promising, and as we progress into the
Phase 1b study and demonstrate efficacy this will open up the commercial
opportunities for AVA6000 and the pre|CISION™ technology platform.
As a Board and company, we understand the very different risk and return
profiles of the Therapeutics and Diagnostic Divisions and we will ensure that
there is appropriate allocation of capital between them so that we can deliver
both near-term and long-term value inflection points across the Group.
In the Therapeutics and Diagnostics teams we have the strength and experience
that is needed to deliver full value from our technology platforms. With these
teams and the experienced Board that we have brought together, the future
prospects for Avacta are very positive indeed.
Dr Eliot Forster
Chairman
25 April 2023
Chief Executive Officer's Statement
Avacta has made substantial progress during 2022 in both its Therapeutics and
Diagnostics Divisions.
The favourable safety profile emerging from the Phase Ia dose escalation study
of AVA6000, the Company's lead pre|CISION™ tumour-activated chemotherapy,
indicates that tumour-specific activation of the chemotherapy by FAPα is
significantly reducing the exposure of healthy tissues to the chemotherapy.
Furthermore, analysis of tumour biopsies has confirmed that the active
chemotherapy is being released at therapeutically relevant levels in the
tumour tissue. These data combined are very encouraging, if early, signs for
both AVA6000 as a safer form of doxorubicin and for the pre|CISION™ platform
and its potential pipeline as a whole.
The safety and tolerability of AVA6000 for patients has meant that a maximum
tolerated dose has not been reached as anticipated within the first four dose
escalation cohorts. We are now in a position to proceed beyond the fourth
cohort in the dose escalation study to even higher doses than originally
anticipated, which is an unexpected and very positive development reflecting
the very positive safety data that are emerging from the trial.
The Diagnostics Division initiated an M&A-led growth strategy to
capitalise on the opportunity to consolidate in a fragmented European
diagnostics sector. The Company set out a vision to build a substantial
European IVD business serving both clinicians and consumers with pathology
laboratory solutions for disease diagnostics and home testing to improve
fitness, health and well-being.
In October 2022, Avacta completed a fundraise of £61.3 million (gross)
through a combination of convertible bonds and a placing to new and existing
shareholders with an open offer, primarily to fund the Diagnostics M&A
strategy. Simultaneously the Company completed its first acquisition - of the
UK's largest independent IVD distributor, Launch Diagnostics - which has
provided Avacta with well-established sales channels in the professional,
centralised hospital laboratory testing market in the UK and France.
Avacta Animal Health
In March 2022, we sold our Animal Health Division to Vimian Group AB's
specialty pharma segment Nextmune, a global veterinary health group
headquartered in Sweden. The Animal Health Division had been a part of the
Group since 2009. All the staff in the Animal Health Division moved across to
Vimian and we wish them all well in the future. The sale will allow the Group
to focus on growing and developing our core Therapeutics and Diagnostics
businesses.
Board changes
In March 2022, Dr Christina Coughlin joined the Board as a Non-executive
Director. Dr Coughlin is the Chief Executive Officer of CytoImmune
Therapeutics, Inc., a clinical stage biotechnology company. Dr Coughlin has a
broad background in biotechnology and global pharmaceuticals, with
comprehensive drug development experience spanning programs in pre-IND studies
through to late-stage trials and regulatory approval filings, and a track
record of building drug development teams in global companies including Rubius
Therapeutics, Inc. and Tmunity Therapeutics, Inc.
Our people
I am proud of our people and thank them all for their hard work and commitment
which resulted in the strong progress made in 2022. I am also delighted to
welcome new colleagues in Launch Diagnostics to the Avacta family. We will
continue to invest in developing our people, providing a positive work
environment and rewarding careers.
Outlook
The Board believe that the significant near-term value driver for the Group is
the clinical data from the Phase I study of AVA6000. The pre|CISION™
FAPα-activation approach has the potential to reduce the systemic toxicities
associated with many chemotherapies and as such has the potential to create
safer and more effective oncology treatments that are affordable for all.
The outlook for AVA6000 and the pre|CISION™ platform as a whole looks very
promising, based on the safety, pharmacokinetic and tumour biopsy data
obtained to date. The next significant value driver for AVA6000 will be the
initial efficacy data from the Phase 1b dose expansion phase in patients with
soft tissue sarcoma.
Avacta Diagnostics continues to actively pursue other M&A opportunities to
build a fully integrated and differentiated European diagnostics business.
These focus on expanding our routes to market for both professional and
consumer testing products, while adding further IVD products suitable for
these markets to our portfolio.
I believe that the progress made during 2022 puts the Group in a very strong
position and we are confident and excited about the future.
Dr Alastair Smith
Chief Executive Officer
25 April 2023
Therapeutics Division
Avacta Therapeutics Division aims to leverage its two proprietary technology
platforms, pre|CISION™ and Affimer(®), to develop innovative oncology
therapies that make a significant difference to cancer patients' treatment
experience and outcomes.
The Therapeutics Division relocated its research activities from Cambridge to
White City in London in April 2022, which has brought the research and drug
development teams together at a single site. The relocation was completed on
schedule with minimal down-time and the Therapeutics Division has rapidly
settled into its new, world-class facilities. The team has also expanded to
include experienced drug development professionals, including a Head of
Chemistry, a Head of Biology, Head of IT and a Vice-President of Legal and
Intellectual Property.
The team, supported by the Board and a world-class Scientific Advisory Board
chaired by Dr Mike Owen, is committed to developing tumour-activated drugs
using the prec|CISION™ platform and novel immunotherapies and drug
conjugates using the Affimer(®) platform, and will focus resources on its
clinical and most advanced pre-clinical programmes to achieve near-term value
inflection points.
AVA6000 FAPα-activated doxorubicin - the lead pre|CISION™ programme
Anthracyclines such as doxorubicin, a generic chemotherapy for which the
broader market is expected to grow to $1.38 billion by 2024, are widely used
as part of standard of care in several tumour types, but their use is limited
by cumulative toxicity and, in particular, by cardiotoxicity. Avacta's
pre|CISION™ FAPα-activated approach is designed to reduce the systemic
exposure of healthy tissues to the active chemotherapy, leading to improved
dosing regimens, and potentially improved safety and therapeutic profiles.
The ALS-6000-101 Phase 1 clinical trial involves a dose-escalation Phase 1
study in patients with locally advanced or metastatic-selected solid tumours,
known to be FAPα-positive, in which cohorts of patients receive ascending
doses of AVA6000 to determine the maximum tolerated dose and establish a
recommended Phase 1b dose. The second part of the study is an expansion phase
where patients receive AVA6000 to further evaluate the safety, tolerability
and clinical efficacy at this recommended Phase 1b dose in soft tissue
sarcoma. For more information visit www.clinicaltrials.gov
(http://www.clinicaltrials.gov) (NCT04969835).
Soft-tissue sarcoma is a relatively rare mesenchymal malignancy which accounts
for less than 1% of all adult tumours. Despite the successful advancement of
localised therapies, such as surgery and radiotherapy, these tumours can
recur, often with metastatic disease. The American Cancer Society estimates
that in 2022 approximately 13,190 new soft tissue sarcomas were diagnosed and
about 5,130 people were expected to die of the disease in the US.
The Phase 1a dose escalation study is being carried out at several sites in
the UK: The Royal Marsden NHS Foundation Trust in London, The Christie NHS
Foundation Trust in Manchester, St James' Hospital in Leeds, The Beatson in
Glasgow and The Freeman in Newcastle.
The starting dose with cohort 1 was 80 mg/m(2) of AVA6000, which is equivalent
to 54 mg/m(2) of doxorubicin (about 90% of the normal doxorubicin dose). The
Safety Data Monitoring Committee ('SDMC') reviewed the data from cohort 1 in
February 2022 and recommended that the dose was escalated to 120 mg/m(2),
subsequently recommending that the trial progress to the third cohort in June
2022 at a dose of 160 mg/m(2). In August 2022, the third cohort was completed
and the SDMC approved dose escalation to 200mg/m(2) in the fourth cohort. The
results of the fourth cohort were announced immediately post-period end on 17
January 2023. In April 2023, the SDMC recommended dose escalation to
250mg/m(2) in the fifth cohort.
The data emerging from the dose escalation study show a very favourable safety
profile. AVA6000 in the four cohorts has been well tolerated by patients, with
a marked reduction in the incidence and severity of the typical toxicities
associated with the standard doxorubicin chemotherapy administration. Typical
toxicities include alopecia, myelosuppression, nausea, vomiting, mucositis and
cardiotoxicity. Importantly, even at the highest dosing levels in the fourth
cohort, equivalent to more than double the normal dose of doxorubicin, the
typical drug-related cardiotoxicity of doxorubicin was not observed.
Critically, analysis of a number of tumour biopsies obtained from patients in
different cohorts has confirmed the release of the active chemotherapy,
doxorubicin, in the tumour tissue. This analysis shows that AVA6000 targets
the release of doxorubicin to the tumour tissue at therapeutic levels which
are much higher than the levels being detected in the bloodstream at the same
timepoint.
On the basis of the very favourable safety profile of AVA6000 in the study to
date, the SDMC has recommended continuation to higher dose cohorts with the
aim of identifying a maximum tolerated dose ('MTD') necessary to inform the
dosing levels for the Phase 1b and future studies. The Medical and Healthcare
products Regulatory Agency approved a modification to the clinical trial
protocol to allow the study to continue into additional higher dose cohorts.
The Company expects to complete these cohorts and identify the MTD in the
first half of 2023.
Following approval by the US Food and Drug Administration ('FDA') of an
Investigational New Drug ('IND') application, two clinical trial sites in the
US were being prepared to join the ALS-6000-101 study at the Memorial Sloane
Kettering Cancer Center in New York and the Fred Hutchinson Cancer Center in
Seattle, with both sites confirmed open to recruiting patients post period end
in April 2023.
The FDA has also granted Orphan Drug Designation ('ODD') to the Company's lead
pre|CISION™ drug candidate, AVA6000, for treatment of soft tissue sarcoma.
The FDA can grant ODD based on a review of preclinical data from
investigational treatments for rare diseases, such as soft tissue sarcoma,
which are defined as conditions affecting fewer than 200,000 people in the US.
This designation qualifies the developer of the drug for certain incentives,
including seven years of market exclusivity upon drug approval from the FDA.
Pipeline of pre|CISION™ chemotherapies
Avacta's pre|CISION™ platform is a proprietary chemical modification that
renders the modified chemotherapeutic drug inactive in the circulation until
it enters the tumour micro-environment, where it is activated by an enzyme
called FAPα. FAPα is in high abundance in most solid tumours but not in
healthy tissues such as the heart. This is expected to lead to a significantly
greater amount of active drug in the tumour tissue compared with healthy
tissues and a concomitant improvement in tolerability for patients and better
clinical outcomes.
Emerging data from the AVA6000 Phase 1a study indicate that the pre|CISION™
chemistry is effective in reducing systemic exposure to the chemotherapy,
creating the opportunity to apply it to a wide range of other established
chemotherapies to potentially improve their safety and efficacy.
The next most advanced pre|CISION™ pro-drug candidate is AVA3996, a
FAPα-activated proteasome inhibitor based on an analogue of Velcade. In
January 2022, the Company announced that, following a review of efficacy
studies in several liquid and solid tumour models, safety studies and of
manufacturability, AVA3996 has been selected as a candidate for pre-clinical
development with the aim of a Clinical Trial Authorisation ('CTA') and/or IND
filing in 2023 and dosing of the first patient as soon thereafter as possible.
The global proteasome inhibitors' market size is expected to be worth $2.3
billion by 2026, and Velcade represents just over half of that market. As with
all chemotherapies, the benefit of these drugs is limited by toxicities and
tolerability for patients. In the case of Velcade, there are significant side
effects such as peripheral neuropathy, which has limited its approval,
principally in treating multiple myeloma. A potentially safer proteasome
inhibitor, such as AVA3996, could win significant market share for the
treatment not only of multiple myeloma but also could be used to treat solid
tumours, such as pancreatic cancer. Pancreatic cancer exhibits the highest
level of FAP activity of any solid tumour and therefore a FAPα-activated drug
could have significant potential in this area of high unmet need.
During 2022, AVA3996 was studied in several animal efficacy models for
melanoma, colorectal cancer and sarcoma. In each of these cancer models
AVA3996 was as effective as Velcade in preventing growth of the human tumour
implanted in the mice. However, whereas the systemic toxicities caused by
Velcade resulted in significant body weight loss in the animals, treatment
with AVA3996 showed no such toxicities. It is this potential improvement in
therapeutic window of AVA3996 created by the tumour targeting of the
proteasome inhibitor that holds promise for the first effective use of a
proteasome inhibitor in solid tumours.
The Company is continuing its pre-clinical development of AVA3996 with the aim
of an IND filing late in 2023 or 2024 and anticipated first-in-human clinical
trial starting in 2024. Post period end in April 2023, pre-clinical data for
AVA3996 was presented at the 2023 American Association for Cancer Research
(AACR) Annual Meeting in Florida, USA, one of the largest international cancer
research meetings.
Affimer(®) immunotherapy programmes
Translation of the Affimer(®) platform into the clinic to demonstrate the
safety and tolerability of this novel therapeutic protein platform is an
important objective for the Company and represents a key value inflection
point for the Affimer technology.
In the oncology field recent studies have shown that single cancer
immunotherapies, or 'monotherapies', have potentially limited overall response
rates. The Company's Affimer(®) immunotherapy strategy aims to harness the
benefits of the Affimer(®) platform to build bispecific drug molecules which
can address two drug targets simultaneously, and to use Affimer(®) molecules
to target toxic payloads using conventional and pre|CISION™ linkers.
Whilst the Company is prioritising its pre|CISION™ programmes as the nearest
term driver of key value inflection points, good progress has been made in the
in-house Affimer(®) bispecific and TMAC(®) pre-clinical programmes which,
along with the Company's commercial collaborations, are a key part of in-house
research activities.
Drug Development Collaborations
The Company has several important commercial collaborations covering both the
Affimer(®) and pre|CISION™ platforms, and is active in pursuing future
opportunities for licensing and partnerships.
LG Chem Life Sciences
Avacta has a strategic partnership with LG Chem Life Sciences focused on the
development of a novel PD-L1 checkpoint inhibitor utilising the Affimer(®)
platform incorporating Affimer XT(®) half-life extension. The partnership
also provides LG Chem with rights to develop and commercialise other
Affimer(®) and non-Affimer biotherapeutics combined with Affimer XT(®)
half-life extension for a range of indications, and Avacta could earn up to
$55 million in milestone payments for each of these new products. In addition,
under the agreement Avacta will earn royalties on all future Affimer XT(®)
product sales by LG Chem.
At the end of June 2022, LG Chem exercised its option to renew its rights
under the ongoing collaboration with Avacta, triggering a licence renewal fee
payment to Avacta of $2 million. LG Chem is now focused on progressing the
PD-L1/XT oncology drug candidate towards the clinic and has commenced
pre-clinical studies which are intended to form the basis of an
Investigational New Drug ('IND') submission.
AffyXell Therapeutics
AffyXell is a joint venture company with Daewoong Pharmaceuticals in South
Korea that is developing mesenchymal stem cell therapies which have been
modified to produce Affimer(®) immunotherapies in vivo at the site of action
of the stem cells.
AffyXell has made good progress, advancing both its GMP-compliant human
mesenchymal stem cell technology and its Affimer(®) discovery programmes
against two of the three initial targets. AFX001 is a mesenchymal stem cell
('MSC') therapy which secretes anti-CD40L Affimer(®) for the treatment of
Guest versus Host Disease in organ transplantation. AFX002 is an MSC secreting
an agonist Affimer against an undisclosed target for use in multiple sclerosis
and T1 diabetes.
In April 2022, a milestone equity payment was made by AffyXell to Avacta
resulting in an increase in Avacta's shareholding in the joint venture. This
payment was triggered by Avacta successfully developing and characterising
Affimer(®) proteins against CD40L for AffyXell and transferring the
associated intellectual property into AffyXell. In exchange for this, Avacta
has received an increase in its equity stake in AffyXell, which was diluted
from its founding equity stake in February 2021 when AffyXell completed a
Series A financing of $7.3 million from a group of venture funds in February
2021. At 31 December 2022, Avacta's shareholding in the joint venture was 19%.
AffyXell also successfully completed a funding round in May 2022, raising an
undisclosed amount of capital, to advance its lead mesenchymal stem cell
programme towards the clinic, and to develop its wider pre-clinical pipeline
of cell therapies.
POINT Biopharma Inc.
Early in 2021, Avacta signed a licensing agreement with POINT Biopharma Inc.
('POINT'), to provide access to Avacta's pre|CISION™ technology for the
development of tumour-activated radiopharmaceuticals.
Under the terms of the agreement, Avacta received an upfront fee and will
receive development milestone payments for the first radiopharmaceutical
FAPα-activated drug totalling $9.5 million. Avacta will also receive
milestone payments for subsequent radiopharmaceutical FAPα-activated drugs of
up to $8 million each, a royalty on sales of FAP-activated
radiopharmaceuticals by POINT and a percentage of any sublicensing income
received by POINT.
Diagnostics Division
During 2022, Avacta's Diagnostics Division initiated an M&A-led growth
strategy to take advantage of the fragmentation in the European in-vitro
diagnostics ('IVD') sector with the aim of building an integrated and
differentiated IVD business with global reach serving professionals and
consumers.
In order to achieve this vision, the Company has, since late 2021, been
building a pipeline of potential acquisition targets covering routes to market
in the professional and consumer markets, as well as companies with product
portfolios suitable for use in these sectors. The Company has focused its
M&A strategy on profitable businesses engaged in developing or
distributing immunodiagnostic and molecular diagnostic tests.
Avacta's mission is to support clinicians in the diagnosis of disease and to
improve health and well-being through better access to self-testing for all.
Innovation remains a key strength of Avacta Diagnostics and in the competitive
immunodiagnostics market the Affimer(®) platform provides a powerful tool to
differentiate diagnostic products to gain competitive advantage and grow
market share of acquired businesses.
In October 2022, Avacta completed a fundraise of £61.3 million (gross)
through a combination of convertible bonds and a placing to new and existing
shareholders with an open offer, primarily to fund the Diagnostics M&A
strategy.
Simultaneously the Company completed its first acquisition, Launch
Diagnostics, a leading independent distributor in the UK IVD market. This has
provided Avacta with well-established sales channels in the professional,
centralised hospital laboratory testing market in the UK and France. Avacta's
plan to grow the Launch Diagnostics business includes expanding the company's
product portfolio and investing in the sales teams in the UK and France.
However, the most significant opportunity for growth lies in the geographical
expansion of the business into Germany, which is Europe's largest diagnostics
market.
Avacta Diagnostics continues to pursue a careful and disciplined M&A strategy focussed on expanding our routes to market for both professional and consumer testing products, while adding further IVD products suitable for these markets to our portfolio.
Financial Review
Revenue
Reported Group revenues for the year ended 31 December 2022 increased to
£9.65 million compared to £2.94 million for the year ended 31 December 2021
('2021').
Revenues for the Therapeutics Division increased to £5.48 million (2021:
£2.16 million), due to achieving certain milestones in our collaborations
with LG Chem (£1.65 million in cash) and AffyXell (£3.60 million in
additional equity in the joint venture), together with further funded FTE
reimbursement from collaboration partners.
Revenues for the Diagnostics Division were £4.17 million (2021: £0.78
million), with the increase coming from the acquisition of Launch Diagnostics
in October 2022, which contributed £3.97 million and the remainder from a
smaller number of custom Affimer(®) reagent projects as resources were
focused on the development of future diagnostic tests.
Acquisitions
On 21 October 2022, the Group acquired 100% of the shares and voting interests
in Launch Diagnostics Holdings Ltd ('Launch Diagnostics'). Launch Diagnostics
is a leading independent IVD distributor in the UK, providing immunodiagnostic
and molecular test products, technical support and maintenance to healthcare
providers. Total consideration for Launch Diagnostics included an initial
consideration of £24 million in cash payable upon completion of the
acquisition, in addition to £0.9 million for other short-term non-operating
assets and an additional consideration of 50% of the gross margin on sales
exceeding £2 million per annum of Launch Diagnostics' COVID-19 related
products for three years capped at £13 million (in aggregate). The additional
consideration to be paid based on future gross margin is estimated to be nil
as at 31 December 2022.
The acquisition of Launch Diagnostics is the first step in a M&A-led
growth strategy for the Group's Diagnostics Division, with the vision of
building an integrated and differentiated IVD business with global reach
servicing professionals and consumers.
For the period from acquisition to 31 December 2022, Launch Diagnostics
contributed revenue of £3,971,000 and profit of £309,000 to the Group's
results.
Research and amortisation of development costs
During the year, the Group expensed through the income statement £11.10
million (2021: £13.48 million) research costs relating to the in-house
Affimer(®) and pre|CISION(™) therapeutic programmes, which are expensed
given their pre-clinical stage of development, in addition to research costs
on Affimer(®) diagnostics products that have not yet completed product
development and obtained regulatory approval to become commercial products.
Selling, general and administrative expenses
Administrative expenses have increased during the year to £11.23 million
(2021: £8.14 million). This has increased because of the Launch Diagnostics
acquisition (£1.43 million of administrative expenses) and the scale-up of
the operations within both the Diagnostics Division, as it increased its
product development capabilities to become a fully integrated IVD products
business, and the Therapeutics Division as resource was increased to support
the infrastructure required and transition into a clinical stage business.
Adjusted EBITDA
The Consolidated Statement of Profit or Loss shows an Adjusted EBITDA loss
position (before non-recurring items) of £15.09 million for the year (2021:
£21.74 million), with the reduction in losses due to improved revenues and
the resulting gross profit increases.
Amortisation and impairment of development costs
Development costs capitalised in prior periods from the development of the
Affimer(®) reagents and the diagnostics platform have been amortised,
resulting in a charge of £0.82 million (2021: £0.82 million). An impairment
charge of £5.23 million (2021: £nil) was recognised in the year in relation
to previously capitalised Affimer(®) reagents development costs. This
reflects the change in focus within the Diagnostics Division to build on its
M&A strategy; whereby the development of diagnostic products incorporating
Affimer(®) reagents is now expected to occur through new development,
manufacturing, and distribution partners as the Diagnostics Division expands
in future periods. As the M&A activity was still in progress at 31
December 2022, it was not possible to provide certainty on the timelines of
future acquisitions or, therefore, the timeframe in which cashflows from
Affimer(®) reagent developed products would be received, necessitating an
impairment charge to be recognised.
Share of loss of associate
The share of loss of associate of £1.15 million arises from the Group's
equity-accounted investment in AffyXell Therapeutics Co., Ltd. The share of
losses reflects the Group's 19% ownership share of the losses accumulated
since its inception in 2020. The Group investment increased from 5% to 19% at
31 December 2022 as a result of additional equity issued due to the Group
achieving certain technical milestones for the collaboration during the year.
Share-based payment charges
The non-cash charge for the year increased to £7.49 million (2021: £5.06
million) as a result of changes to the assumptions around the likelihood of
vesting of options. There were no new options issued during the year.
Convertible bond costs
In October 2022, the Group issued senior unsecured convertible bonds ('the
Bonds') of £55.00 million to a fund advised by Heights Capital Ireland LLC, a
global equity and equity-linked focussed investor. The Bonds were issued at
95% par value with total net proceeds of £52.25 million, and accrue interest
at an annual rate of 6.5% payable quarterly in arrears.
The Bonds contain various conversion and redemption features. The Bonds have a
maturity of five years, and are repayable in 20 quarterly amortisation
repayments, of principal and interest over the five-year term, in either cash
or in new ordinary shares at the Group's option. If in shares, the repayment
is at the lower of the conversion price (118.75p) or a 10% discount to the
volume weighted average price ('VWAP') in the five- or ten-day trading period
prior to election date. The conversion price may reset downwards at 18 months,
depending on share price performance, and save in limited circumstances there
is a reset price floor of £0.95.
The bond agreement contains embedded derivatives in conjunction with an
ordinary host debt liability. As a result, the convertible bonds are shown in
the Consolidated Statement of Financial Position in two separate components,
being 'Convertible bond - debt' and 'Convertible bond - derivative'. At
issuance, the total inception value was £55.00 million, being the principal
amount of the Bonds, with the initial carrying amount of the debt liability
element being the difference between the inception value of the convertible
bond and the fair value at inception of the derivative element. Given the
option of the bondholder to convert the bond at their discretion, the debt and
derivative liability elements have been classified as current liabilities.
The derivative element has been measured at fair value using a Monte-Carlo
option pricing model, which estimates the fair value based on the
probability-weighted present value of expected future investment returns,
considering each of the possible outcomes available to the bondholders. This
therefore falls under Level 3 of the fair value hierarchy. Significant
assumptions used in the fair value analysis include the volatility rate,
risk-free rate and expected dividend yield. At inception, the fair value of
the derivative component was measured at £35.00 million. The fair value at
the year-end date was measured to be £39.10 million, resulting in charge in
revaluation of the derivative being recognised of £4.10 million.
Transaction costs of £3.41 million have been apportioned between the
derivative and debt liability components according to the relative inception
values. This has resulted in £2.29 million of transaction costs being
recognised at acquisition, with £1.13 million adjusted for in the carrying
amount of the debt liability at acquisition.
Losses before taxation
Losses before taxation from continuing operations for the year were £41.64
million (2021: £29.19 million).
Taxation
The Group claims each year for research and development tax credits and, since
it is currently loss-making, elects to surrender these tax credits for a cash
rebate. The amount is included within the taxation line of the consolidated
statement of profit and loss in respect of amounts received and receivable for
the surrender of research and development expenditure amounting to £2.23
million (2021: £2.82 million). The Group has not recognised any tax assets in
respect of trading losses arising in the current financial year or accumulated
losses in previous financial years.
Discontinued operations
In March 2022, the Animal Health Division was sold to Vimian Group AB and the
results for the current year up to disposal and prior year have been disclosed
in the Consolidated Statement of Profit or Loss as Discontinued Operations.
Revenues were £0.41 million (2021: £1.60 million) and the Animal Health
Division made a small operating profit of £0.05 million (2021: £0.07
million). An up-front payment of £0.9 million was received with deferred
contingent consideration of up to £1.4 million dependent on the combined
performance of the consolidated business, of which £0.7 million was
recognised in the current year based on the anticipated performance of the
combined business. The profit on disposal recognised in the year was £0.31
million.
Loss for the period
The reported loss for the period was £39.19 million (2021: £26.31 million).
The loss per ordinary share increased to 15.35 pence (2021: 10.55 pence) based
on a weighted average number of shares in issue during the period of
259,007,001 (2021: 253,555,925).
Cash flow
The Group reported cash and short-term deposit balances of £41.78 million at
31 December 2022 (2021: £26.19 million).
Operating cash outflows from operations amounted to £15.95 million (2021:
£22.66 million).
During the year, capital expenditure was £0.56 million (2021: £1.16 million)
as the facility move from Cambridge to London was completed.
Net cash outflow from investing activities amounted to £25.04 million (2021:
inflow of £18.70 million) arising principally from the acquisition of Launch
Diagnostics, an outflow of £24.88 million net of cash acquired. The disposal
of the Animal Health discontinued operation generated £0.55 million cash
proceeds, net of transaction costs, in the period.
In October 2022, the Group completed a fundraise of £61.27 million (gross)
through a combination of £55.00 million senior unsecured convertible bonds
issued at a 5% discount from a fund advised by Heights Capital Ireland LLC,
and £9.02 million through a placing to new and existing shareholders and open
offer (2021: £nil). There were also proceeds from the exercise of share
options by employees amounting to £0.47 million (2021: £0.52 million).
Financial position
Net assets as at 31 December 2022 were £18.44 million (2021: £41.22 million)
of which cash and cash equivalents amounted to £41.78 million (2021: £26.19
million).
The IFRS 16 Leases presentation results in the recognition of a 'right-of-use'
asset amounting to £5.42 million (2021: £1.73 million) in relation to the
Group's leasehold properties and other leased assets, together with a
corresponding lease liability of £5.11 million (2021: £1.70 million); the
increase arising due to the longer term lease on the London facility and the
acquisition of Launch Diagnostics.
Intangible assets increased to £26.32 million (2021: £7.93 million) due to
the acquisition of Launch Diagnostics and the recognition of £12.69 million
of goodwill. Further details on the acquisition accounting are detailed in
Note 26 to the Financial Statements.
Liabilities in relation to the convertible bonds issued during the period have
been recognised, with £39.10 million relating to the fair value of the
derivative element at 31 December 2022, and £18.73 million relating to the
debt liability element.
Dividends
No dividends have been proposed for the year ended 31 December 2022 (2021:
£nil).
Key performance indicators
At this stage of the Group's development, the non-financial key performance
indicators focus around two areas:
· the progression of the Affimer(®) and pre|CISION(™)
technologies into clinical trials within the Therapeutics Division; and
· the development of Affimer(®) reagents to feed into future
diagnostic products within the M&A-led growth strategy in the Diagnostics
Division.
The financial key performance indicators focus around three areas, that allow
an assessment of the performance of the business as the Diagnostics Division
in particular progresses through the M&A-led growth strategy, and of the
funding available as the Therapeutics Division progresses into clinical trials
· Group revenues
· Adjusted EBITDA
· Cash and short-term deposit balances
Tony Gardiner
Chief Financial Officer
25 April 2023
Cautionary statement
The preliminary statements contain forward-looking statements that are subject
to risk factors associated with, amongst other things, economic and business
circumstances occurring from time to time within the markets in which the
Group operates. The expectations expressed within these statements are
believed to be reasonable but could be affected by a wide variety of variables
outside of the Group's control. These variables could cause the results to
differ materially from current expectations. The forward-looking statements
reflect the knowledge and information available at the time of preparation.
The preliminary statements use Alternative Performance Measures ('APMs') to
assist in presenting information in an easily analysable and comparable form.
The APMs used provide a meaningful basis on which to analyse the Group's
financial performance, which is helpful to the reader, however it is noted
that they are not substitutes for IFRS measures and may not be directly
comparable to similarly titled measures used by other companies. APMs are
defined in Note 1 to the preliminary statements.
Unaudited Consolidated Statement of Profit or Loss and Other Comprehensive
Income for the Year Ended 31 December 2022
2022 2021
£000 Note
Continuing operations
Revenue 3 9,653 2,941
Cost of sales (2,410) (924)
------------- -------------
Gross profit 7,243 2,017
Research costs (11,100) (13,480)
Manufacturing costs - (2,143)
Selling, general and administrative expenses (11,232) (8,136)
------------- -------------
Adjusted EBITDA (15,089) (21,742)
Impairment charge (5,225) -
Depreciation expense (1,904) (1,462)
Amortisation expense (1,050) (821)
Share of loss of associate (1,152) -
Acquisition-related expenses 7 (735) -
Share-based payment expense (7,490) (5,058)
------------- -------------
Operating loss (32,645) (29,083)
Convertible bond - professional fees 5 (2,287) -
Convertible bond - interest expense 5 (2,606) -
Convertible bond - revaluation of derivative 5 (4,100) -
Finance income 91 17
Other finance costs (95) (128)
------------- -------------
Loss before tax (41,642) (29,194)
Taxation 2,102 2,820
------------- -------------
Loss from continuing operations (39,540) (26,374)
------------- -------------
Discontinued operation
Profit from discontinued operation 8 351 58
------------ ------------
Loss for the period (39,189) (26,316)
Foreign operations - foreign currency translation differences 46 4
----------- -----------
Other comprehensive income 46 4
------------ ------------
Total comprehensive loss for the period (39,143) (26,312)
----------- -----------
Loss per share:
Basic and diluted 4 (15.35p) (10.55p)
Loss per share - continuing operations
Basic and diluted 4 (15.48p) (10.57p)
Unaudited Consolidated Statement of Financial Position as at 31 December 2022
2022 2021
Note £000 £000
Assets
Property, plant and equipment 2,380 2,612
Right-of-use assets 5,418 1,729
Intangible assets 26,324 7,925
Investment in associate 2,976 -
------------- -------------
Non-current assets 37,098 12,266
------------- -------------
Inventories 1,681 189
Trade and other receivables 5,579 4,327
Income tax receivable 6,510 2,750
Cash and cash equivalents 41,781 26,191
------------- -------------
55,551 33,457
Assets held for sale - 1,279
------------- -------------
Current assets 55,551 34,736
------------- -------------
Total assets 92,649 47,002
------------- -------------
Liabilities
Lease liabilities (3,753) (1,412)
Deferred tax (2,845) -
------------- -------------
Non-current liabilities (6,598) (1,412)
------------- -------------
Trade and other payables (8,423) (3,731)
Lease liabilities (1,361) (291)
Convertible bond - debt 5 (18,729) -
Convertible bond - derivative 5 (39,100)
------------- -------------
(67,613) (4,022)
Liabilities directly associated with the assets held for sale - (346)
------------- -------------
Current liabilities (67,613) (4,368)
------------- -------------
Total liabilities (74,211) (5,780)
------------- -------------
Net assets 18,438 41,222
------------- -------------
Equity
Share capital 26,685 25,472
Share premium 62,184 54,530
Reserves (4,434) (4,687)
Retained earnings (65,997) (34,093)
------------- -------------
Total equity 18,438 41,222
------------- -------------
Unaudited Consolidated Statement of Changes in Equity for the Year Ended 31
December 2022
Share capital Share premium Other reserve Translation reserve Reserve for own shares Retained earnings Total equity
£000 £000 £000 £000 £000 £000 £000
------------ ------------- ------------- ------------- ----------- ------------- -----------
Balance at 1 January 2021 25,343 54,137 (1,729) - (2,961) (12,861) 61,929
Loss for the period - - - - - (26,316) (26,316)
Other comprehensive income for the period - - - 4 - - 4
------------ ------------ ------------ ------------ ------------ ------------ -----------
Total comprehensive loss for the period - - - 4 - (26,316) (26,312)
Transactions with owners of the Company:
Exercise of share options 129 393 - - - - 522
Equity-settled share-based payment - - - - - 5,083 5,083
------------ ------------- ------------- ------------- ----------- ------------- -----------
129 393 - - - 5,083 5,605
------------ ------------- ------------- ------------- ----------- ------------- -----------
Balance at 31 December 2021 25,472 54,530 (1,729) 4 (2,961) (34,093) 41,222
Loss for the period - - - - - (39,189) (39,189)
Other comprehensive income for the period - - - 46 - - 46
------------ ------------ ------------ ------------ ----------- ------------ -----------
Total comprehensive loss for the period - - - 46 - (39,189) (39,143)
Transactions with owners of the Company:
Issue of shares 949 7,448 - - - - 8,397
Exercise of share options 264 206 - - - - 470
Transfer of own shares - - - - 206 (206) -
Equity-settled share-based payment - - - - - 7,490 7,490
------------- ------------- ------------- ------------- ------------ ------------- -------------
1,213 7,654 - - 206 7,284 16,357
------------- ------------- ------------- ------------- ------------ ------------- -------------
Balance at 31 December 2022 26,685 62,184 (1,729) 50 (2,755) (65,997) 18,438
------------- ------------- ------------- ------------- ------------ ------------- -------------
Unaudited Consolidated Statement of Cash Flows for the Year Ended 31 December
2022
Note 2022 2021
£000 £000
Operating cash outflow from operations 6 (15,953) (22,656)
Interest received 75 17
Interest elements of lease payments (202) (139)
Income tax (paid) / received (168) 2,291
Withholding tax paid (184) (19)
------------- -------------
Net cash used in operating activities (16,432) (20,506)
------------- -------------
Cash flows from investing activities
Purchase of plant and equipment (558) (1,162)
Proceeds from sale of plant and equipment 50 -
Acquisition of subsidiary, net of cash acquired (24,878) -
Disposal of discontinued operation, net of cash disposed of 705 -
Transaction costs related to disposal of discontinued operation (160) -
Acquisition of right-of-use assets (165) -
Purchase of intangible assets (36) (152)
Decrease in balances on short-term deposit - 20,017
------------- -------------
Net cash (used in) / generated from investing activities (25,042) 18,703
------------- -------------
Cash flows from financing activities
Proceeds from issue of share capital 9,016 -
Transaction costs related to issue of share capital (618) -
Proceeds from exercise of share options 470 522
Principal elements of lease payments (800) (290)
Proceeds from issue of convertible bonds 5 52,250 -
Transaction costs related to issue of convertible bonds 5 (3,414) -
------------- -------------
Net cash from financing activities 56,904 232
------------- -------------
Net increase/(decrease) in cash and cash equivalents 15,430 (1,571)
Cash and cash equivalents at 1 January 2022 26,191 27,894
Effects of movements in exchange rates on cash held 160 4
------------- -------------
41,781 26,327
Cash and cash equivalents forming part of assets held for sale - (136)
------------- -------------
Cash and cash equivalents at 31 December 2022 41,781 26,191
------------- -------------
Notes to the Preliminary Results to 31 December 2022
1 General Information
These preliminary results have been prepared on the basis of the accounting
policies which are set out in Avacta Group plc's annual report and financial
statements for the year ended 31 December 2022.
The consolidated financial statements of the Group for the year ended 31
December 2022 were prepared in accordance with UK adopted international
accounting standards.
The financial information set out above for the year ended 31 December 2022
and the year ended 31 December 2021 does not constitute the Company's
statutory accounts for those years.
Statutory accounts for the year ended 31 December 2021 have been delivered to
the Registrar of Companies and distributed to shareholders. The auditors'
report on those accounts was unqualified, did not draw attention to any
matters by way of emphasis, and did not contain a statement under 489(2) or
498(3) of the Companies Act 2006.
The financial information for the year ended 31 December 2022 is unaudited.
The statutory accounts for that year will be delivered to the Registrar of
Companies following the Company's Annual General Meeting.
Basis of preparation
The Group's consolidated financial statements have been prepared in accordance
with UK adopted international accounting standards.
The financial statements have been prepared on the historical cost basis.
Functional and presentation currency
These consolidated financial statements are presented in pound sterling, which
is the Company's functional currency. All amounts have been rounded to the
nearest thousand, unless otherwise indicated.
Going concern
These financial statements have been prepared on a going concern basis,
notwithstanding a loss of £39.1 million and operating cash outflows of £16.0
million for the year ended 31 December 2022. The Directors consider this to be
appropriate for the following reasons.
The Directors have prepared detailed cash flow forecasts that extend to at
least twelve months from the date of approval of the financial statements. The
forecasts take into account the Directors' views of current and future
economic conditions that are expected to prevail over the period. These
forecasts include assumptions regarding the status of therapeutic development
collaborations, the AVA6000 pro-doxorubicin Phase 1 clinical trials,
diagnostic M&A opportunities, product development projects and the Launch
sales pipeline, future revenues and costs, together with various scenarios
which reflect growth plans, opportunities, risks and mitigating actions. The
forecasts also include assumptions regarding the timing and quantum of
investment in the therapeutic and diagnostic development programmes and the
Diagnostics Division's M&A activity.
Whilst there are inherent uncertainties regarding the cash flows associated
with the development of both the therapeutic platforms, together with the
timing and delivery of diagnostic product development projects and future
therapeutic collaboration transactions, the Directors are satisfied that there
is sufficient discretion and control as to the timing and quantum of cash
outflows to ensure that the Company and Group are able to meet their
liabilities as they fall due for at least twelve months from the date of
approval of the financial statements. The key factors considered in reaching
this conclusion are summarised below:
· As at 31 December 2022, the Group's short-term deposits and cash
and cash equivalents were £41.8 million (2021: £26.2 million),
· The Group has a tax refund in relation to R&D tax credits for
the 2021 financial year of £2.8 million which was received in January 2023.
· The Group does have external borrowings in the form of a £55 million
convertible bond with quarterly amortisation settlements by the issue of new
equity, or by cash at the discretion of the Group.
· The Directors have considered the position of the individual trading
companies in the Group to ensure that these companies are also in a position
to continue to meet their obligations as they fall due.
The Directors continue to explore additional sources of income and finance
available to the Group to continue the development of the therapeutic and
diagnostic platforms beyond 2024. The sources of income could come through the
licensing of assets/targets from the proprietary Affimer(®) and pre|CISION™
platforms or through additional therapeutic collaborations, similar to the LG
Chem and Daewoong collaborations, which may include up-front technology access
fees and significant early-stage development income, or through additional
equity fundraises.
Based on these indications, the Directors are confident that the Company will
have sufficient funds to continue to meet its liabilities as they fall due for
at least twelve months from the date of approval of the financial statements
and therefore have prepared the financial statements on a going concern basis.
Use of judgements and estimates
In preparing these consolidated financial statements, management has made
judgements and estimates that affect the application of the Group's accounting
policies and the reported amounts of assets, liabilities, income and expenses.
Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to estimates are recognised prospectively.
Information about judgements and estimates made by management that have the
most significant effects on the amounts recognised in the financial statements
is given below.
The Directors consider that the key judgements made in preparation of the
financial statements are:
Going concern - The judgement of whether or not the accounts should be
prepared on a going concern basis has been disclosed above.
Revenue recognition - Judgements arise from the application of IFRS 15 to the
Group's revenue streams, as disclosed in Note 1C of the financial statements
for the year ended 31 December 2021, as to the timing and nature of revenue
recognised in relation to the achievement of milestones.
Share-based payments - Judgements arise from the choice of inputs to the share
option valuation models underlying the share-based payment charge, as
disclosed in Note 5 of the financial statements for the year ended 31 December
2021.
Capitalisation of development costs - Judgements arise as to whether research
and development projects meet the criteria under IAS 38 to be capitalised,
further information on the specific judgements made is included within Note 1I
of the financial statements for the year ended 31 December 2021 .
Investment in associates - Judgements arise as to whether the relationship
with AffyXell is an associate or an equity investment, the rationale for the
presentation as an associate is disclosed in Note 23 of the financial
statements for the year ended 31 December 2021.
The Directors consider that the assumptions and estimation uncertainties at 31
December 2022 that have a significant risk of resulting in a material
adjustment to the carrying amounts and liabilities in the next financial year
are:
Impairment - Impairment tests have been performed on the carrying amounts of
the Group's cash-generating units. Key assumptions such as the amount and
timing of future cash flow growth, and the achievement of future development
milestones, underlie the recoverable amounts used in these impairment tests.
Acquisitions - Estimation uncertainty is inherent in the methods used to
determine the fair value of the assets acquired and liabilities assumed. These
include the valuation of acquired intangible assets and the estimate of
deferred consideration payable.
Convertible bond - Determining the fair value of the embedded derivative
within the convertible bond, both at inception and at the reporting date.
Significant accounting policies
The Group has consistently applied the accounting policies to all periods
presented in these preliminary statements. Whilst there are a number of new
standards effective from periods beginning after 1 January 2022, the Group has
not early adopted the new or amended standards and does not expect them to
have a significant impact on the Group's consolidated financial statements.
This Group presents an alternative performance measure ('APM'), adjusted
EBITDA, in the Consolidated Statement of Profit or Loss. Adjusted EBITDA is
presented to enhance an investor's evaluation of ongoing operating results, by
facilitating both a meaningful comparison of results between periods and
identification of the underlying cash used by operations within the business.
Items of expenditure included from the adjusted EBITDA measure are those where
the relative magnitudes year-on-year are not directly reflective of
year-on-year performance, or are not closely linked to the underlying
cashflows from operations. There is a clear reconciliation between adjusted
EBITDA and operating loss in the Consolidated Statement of Profit or Loss. It
is noted that the above APM is not a substitute for IFRS measures, and may not
be directly comparable to similarly titled measures used by other companies.
2 Segment reporting
Operating segments
In the view of the Board of Directors, the Group has two (2021: three)
distinct reportable segments, which are Diagnostics and Therapeutics (2021:
Diagnostics, Therapeutics and Animal Health), and segment reporting has been
presented on this basis. The Directors recognise that the operations of the
Group are dynamic and therefore this position will be monitored as the Group
develops.
The principal activities of each reportable segment in the current and prior
year are as follows:
Diagnostics: development and sale of innovative, next generation diagnostic
solutions and disruptive immunodiagnostic products, including Affimer(®)
reagents
Therapeutics: development of novel cancer therapies harnessing proprietary
technology
Animal Health: provision of tools and contract services to assist diagnosis of
conditions in animals to enable faster treatment for veterinarians. The Animal
Health operating segment was sold in March 2022, and has been classified as a
discontinued operation from the start of the prior year.
Segment revenue represents revenue from external customers arising from sale
of goods and services, plus inter-segment revenues. Inter-segment transactions
are priced on an arm's length basis. Segment results, assets and liabilities
include items directly attributable to a segment as well as those that can be
allocated on a reasonable basis.
The Group's revenue from continuing operations to destinations outside the UK
amounted to 74% (2021: 82%) of total revenue. The revenue analysis below, for
continuing operations, is based on the country of registration of the
customer:
2022 2021
£'000 £'000
UK 2,532 540
France 1.296 86
Rest of Europe 158 25
North America 179 815
South Korea 5,481 1,400
Rest of Asia 7 74
------------- -------------
9,653 2,940
During the year, transactions with two external customers, both in the
Therapeutics segment, amounted individually to 10% or more of the Group's
revenues from continuing operations, being £3,798,000 and £1,682,000
respectively. In the year ended 31 December 2021 transactions with three
external customers, two in the Therapeutics segment and one in the Diagnostic
segment, amounted to 10% or more of the Group's revenues from continuing
operations, being £966,000, £736,000 and £523,000 respectively.
Operating segment analysis 2022
Diagnostics Therapeutics Central overheads(1) Total (continuing) Animal Health (discontinued)
£000 £000 £000 £000 £000
Revenue 4,172 5,481 - 9,653 412
Cost of goods sold (2,282) (128) - (2,410) (118)
------------- ------------- ------------- -------- -------------
Gross profit 1,890 5,353 - 7,243 294
Research costs (2,309) (8,791) - (11,100) -
Selling, general and administrative expenses (4,706) (2,403) (4,122) (11,231) (240)
------------- ------------- ------------- -------- -------------
Adjusted EBITDA (5,125) (5,841) (4,122) (15,088) 54
Impairment charge (5,225) - - (5,225) -
Depreciation expense (627) (1,269) (9) (1,905) (11)
Amortisation expense (1,033) (8) (9) (1,050) -
Share of loss of associate - (1,152) - (1,152) -
Acquisition-related expenses - - (735) (735) -
Share-based payment expense (1,438) (2,713) (3,339) (7,490) -
------------- ------------- ------------- ------------- -------------
Segment operating loss (13,448) (10,983) (8,214) (32,645) 43
------------- ------------- ------------- ------------- -------------
(1)Central overheads, which relate to operations of the Group functions, are
not allocated to the operating segments.
Operating segment analysis 2021
Diagnostics Therapeutics Central overheads(1) Total (continuing) Animal Health (discontinued)
£000 £000 £000 £000 £000
Revenue 779 2,162 - 2,941 1,604
Cost of goods sold (223) (700) - (923) (506)
------------- ------------- ------------- ------------- -------------
Gross profit 555 1,462 - 2,017 1,098
Research costs (3,665) (9,815) - (13,480) (39)
Manufacturing (2,143) - - (2,143) -
Selling, general and administrative expenses (2,893) (1,899) (3,344) (8,136) (915)
------------- ------------- ------------- ------------- -------------
Adjusted EBITDA (8,146) (10,252) (3,344) (21,742) 144
Amortisation expense (821) - - (821) -
Depreciation expense (505) (950) (7) (1,462) (50)
Share-based payment expense (984) (2,981) (1,093) (5,058) (25)
------------- ------------- ------------- ------------- -------------
Segment operating loss (10,456) (14,183) (4,444) (29,083) 69
------------- ------------- ------------- ------------- -------------
(1)Central overheads, which relate to operations of the Group functions, are
not allocated to the operating segments.
3 Revenue
Year ended 31 December 2022
Diagnostics Therapeutics Continuing operations Animal Health (discontinued) Total
£000 £000 £000 £000
Nature of revenue
Sale of goods 3,779 - 3,779 259 4,038
Provision of services 393 229 622 153 775
Licence-related income - 5,252 5,252 - 5,252
4,172 5,481 9,653 412 10,065
Timing of revenue recognition
Products or services transferred at a point in time 3,780 5,251 9,031 391 9,422
Products or services transferred over time 393 229 622 21 643
4,173 5,480 9,653 412 10,065
Year ended 31 December 2021
Diagnostics Therapeutics Continuing operations Animal Health (discontinued) Total
£000 £000 £000 £000
Nature of revenue
Sale of goods 19 - 19 864 883
Provision of services 260 1,058 1,318 740 2,058
Licence-related income 500 1,104 1,604 - 1,604
779 2,162 2,941 1,604 4,545
Timing of revenue recognition
Products or services transferred at a point in time 520 1,105 1,625 1,540 3,165
Products or services transferred over time 259 1,057 1,316 64 1,380
779 2,162 2,941 1,604 4,545
4 Earnings per ordinary share
The calculation of earnings per ordinary share is based on the profit or loss
for the period and the weighted average number of equity voting shares in
issue excluding own shares held jointly by the Avacta Employees' Share Trust
and certain employees and the shares held within the Avacta Share Incentive
Plan ('SIP').
At 31 December 2022, 20,444,462 options (2021: 25,545,539) have been excluded
from the diluted weighted-average number of ordinary shares calculation
because, due to the loss for the period, their effect would have been
anti-dilutive.
At 31 December 2022, 5,314,010 potentially dilutive shares relating to the
convertible bond (2021: nil) have been excluded from the diluted
weighted-average number of ordinary shares calculation because, due to the
loss for the period, their effect would have been anti-dilutive. Further
details on the convertible bond are set out in Note 5.
2022 2021
Continuing operations Discontinued operation Total Continuing operations Discontinued operation Total
Loss (£000) (39,540) 351 (39,189) (26,374) 58 (26,315)
--------------- --------------- ------------ --------------- --------------- ------------
Weighted average number of shares (number) 255,369,066 249,478,070
--------------- -------------- ------------ --------------- -------------- ------------
Basic and diluted loss per ordinary share (pence) (15.49p) 0.13p (15.35p) (10.57p) 0.02p (10.55p)
--------------- -------------- ------------ --------------- -------------- ------------
In January 2023, 3,068,421 new ordinary shares of 10 pence each were issued in
settlement of the quarterly principal of £2.75 million and interest repayment
of £0.89 million in respect of the unsecured convertible bond.
In February 2023, 2,400,000 new ordinary shares of 10 pence each were issued
and allotted in relation to a Notice of Conversion in respect of £2.85
million of the £55.00 million unsecured convertible bonds.
In April 2023 2,906,097 new ordinary shares of 10 pence each were issued in
settlement of the quarterly principal of £2.6 million and interest repayment
of £0.80 million in respect of the unsecured convertible bond.
5 Convertible bond
In October 2022, the Group issued senior unsecured convertible bonds ('the
Bonds') of £55 million to a fund advised by Heights Capital Ireland LLC, a
global equity and equity-linked focussed investor.
The Bonds were issued at 95% par value with total net proceeds of £52.25
million, and accrue interest at an annual rate of 6.5% payable quarterly in
arrears.
The Bonds contain various conversion and redemption features. The Bonds have a
maturity of five years, and are repayable in 20 quarterly amortisation
repayments, of principal and interest over the five-year term, in either cash
or in new ordinary shares at the Group's option. If in shares, the repayment
is at the lower of the conversion price (118.75p) or a 10% discount to the
volume weighted average price ('VWAP') in the five- or ten-day trading period
prior to election date. The conversion price may reset downwards at 18 months,
depending on share price performance, and save in limited circumstances there
is a reset price floor of 95p.
Additionally, the bondholder has the option to partially convert the
convertible bond at their discretion, though did not do so during the period.
Such a partial conversion did occur after the reporting period.
The bond agreement contains embedded derivatives in conjunction an ordinary
host debt liability. As a result, the convertible bonds are shown in the
Consolidated Statement of Financial Position in two separate components, being
'Convertible bond - debt' and 'Convertible bond - derivative'. At issuance,
the total inception value was £52,500,000, being the 5% issue discount to the
principal amount of the Bonds, with the initial carrying amount of the debt
liability element being the difference between this inception value of the
convertible bond and the fair value at inception of the derivative element.
Given the option of the bondholder to convert the bond at their discretion,
the debt and derivative liability elements have been classified as current
liabilities.
The derivative element has been measured at fair value using a Monte-Carlo
option pricing model, which estimates the fair value based on the
probability-weighted present value of expected future investment returns,
considering each of the possible outcomes available to the bondholders. This
therefore falls under Level 3 of the fair value hierarchy. At inception, the
fair value of the derivative component was measured at £35,000,000, resulting
in an initial carrying amount of the debt liability element of £16,123,000.
The fair value at the year-end date was measured to be £39,100,000 resulting
in a revaluation of the derivative being recognised of £4,100,000.
Significant assumptions used in the fair value analysis include the volatility
rate and recovery amount. A volatility of 67.4% was used in the determination
of the fair value of the derivative element, a reduction of 10% would have
resulted in a reduction in the fair value at inception by £4,401,000 with an
increase of 10% resulting in an increase in the fair value at inception of
£4,561,000. An estimated recovery amount of 75% was also used in the
determination of fair value, with an increase of 10% resulting in an increase
in fair value by £1,351,000 and a decrease by 20% resulting in a decrease in
the fair value by £3,390,000.
Transaction costs of £3,413,000 have been apportioned between the derivative
and debt liability components according to the relative inception values. This
has resulted in £2,287,000 of transaction costs being recognised as an
expense at acquisition, with £1,127,000 adjusted for in the carrying amount
of the debt liability at acquisition.
Convertible bond - derivative Convertible bond - debt
£000 £000
At inception 35,000 16,123
Interest expense - 2,606
Revaluation of derivative 4,100 -
----------- -----------------
At 31 December 2022 39,100 18,729
----------- -----------------
6 Operating cash outflow from operations
2022 2021
£000 £000
Loss for the period (39,189) (26,316)
Adjustments for:
Amortisation expense 1,051 865
Impairment losses 5,225 -
Depreciation 1,961 1,511
Net loss on disposal of property, plant and equipment 52 30
Share of loss of associate 1,152 -
Equity-settled share-based payment transactions 7,490 5,083
Profit on lease modification (31) -
Gain on sale of discontinued operation (308) -
Net finance costs 9,000 121
Increase in investment in associate (4,127) -
Taxation (2,102) (2,820)
------------- -------------
Operating cash outflow before changes in working capital (19,826) (21,526)
Decrease in inventories 52 13
Decrease/(increase) in trade and other receivables 2,225 (1,599)
Increase in trade and other payables 1,596 456
------------- -------------
Operating cash outflow from operations (15,953) (22,656)
------------- -------------
7 Acquisition of subsidiary
On 21 October 2022, the Group acquired 100% of the shares and voting interests
in Launch Diagnostics Holdings Ltd ('Launch Diagnostics'). Launch Diagnostics
is a leading independent IVD distributor in the UK, providing immunodiagnostic
and molecular test products, technical support and maintenance to healthcare
providers.
The acquisition of Launch Diagnostics is the first step in an M&A-led
growth strategy for the Group's Diagnostics Division, with the vision of
building an integrated and differentiated IVD business with global reach
servicing professionals and consumers.
For the period from acquisition to 31 December 2022, Launch Diagnostics
contributed revenue of £3,971,000 and profit of £309,000 to the Group's
results. If the acquisition had occurred on 1 January 2022, management
estimates that consolidated revenue would have been £27,845,000 and
consolidated loss for the year would have been £34,601,000. In determining
these amounts, management has assumed that the fair value adjustments that
arose on the date of acquisition would have been the same if the acquisition
had occurred on 1 January 2022.
A. Consideration transferred
£000
Cash 28,350
Deferred consideration 851
-----------
Total consideration transferred 29,201
In addition, the Group has agreed to pay the selling shareholders additional
consideration of 50% of the gross margin on sales exceeding £2 million per
annum of Launch Diagnostics' COVID-19 related products for three years capped
at £13 million. Based on an assessment of forecast future sales, the fair
value of this contingent consideration at the acquisition date is £nil. At 31
December 2022, the contingent consideration estimated has remained at £nil.
B. Acquisition-related costs
The Group incurred acquisition-related costs of £712,000 on legal fees and
due diligence costs. These costs have been included in 'Acquisition-related
expenses'.
C. Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets acquired and
liabilities assumed at the date of acquisition.
£000
Property, plant and equipment 293
Right-of-use assets 1,121
Intangible assets - brand 1,216
Intangible assets - customer relationships 10,746
Intangible assets - other 2
Inventories 1,545
Trade and other receivables 3,233
Income tax receivable 1,369
Cash and cash equivalents 3,472
Trade and other payables (2,696)
Deferred taxation (2,901)
Lease liabilities (893)
----------
Total identifiable net assets acquired 16,507
Trade receivables comprises gross contractual amounts of £2,493,000 with
£nil expected to be uncollectable at the date of acquisition. Amounts
receivable from selling shareholders were settled at acquisition at their
gross contractual amount.
D. Goodwill
Goodwill arising from the acquisition has been recognised as follows:
£000
Consideration transferred A 29,201
Fair value of identifiable net assets C (16,507)
-----------
Goodwill 12,694
The goodwill is attributable mainly to the skills and technical talent of
Launch Diagnostics' work-force and the synergies expected to be achieved from
integrating the company into the Group's Diagnostics business. None of the
goodwill recognised is expected to be deductible for tax purposes
8 Discontinued operation
On 15 March 2022, the Group sold its entire Animal Health segment (see Note
2). An up-front payment of £860,000 was received with deferred contingent
consideration ('earn-out payment') of up to £1,433,000. There were associated
costs to sell of £181,000. Management committed to a plan to sell the segment
in late 2021 following a strategic decision to place focus on the Group's key
competencies - the development of diagnostic products and cancer therapies.
Contingent consideration of £717,000 has been estimated as at 31 December
2022. The earn out payment is tiered based on revenues achieved by the
combined performance of the Animal Health segment and its acquirer. Based on
the maximum revenues achieved in any twelve month period of the 3 years to 31
December 2024 (the 'earn-out period'), the earn-out payment will be nil,
£717,000 or £1,433,000. Management's estimate has been derived from the
information on performance for the period to 31 December 2022 and growth rates
expected over the remaining earn-out period.
The Animal Health segment was classified as held for sale in the consolidated
financial statements for the year ended 31 December 2021.
A. Effect of the disposal on the financial position of the Group
The carrying amounts of assets and liabilities in the disposal group are
summarized as follows:
£000
Property, plant and equipment (20)
Right of use asset (122)
Intangible asset (778)
Inventories (81)
Trade and other receivables (192)
Cash and cash equivalents (194)
Trade and other payables 175
Lease liabilities 124
------------
Net assets and liabilities (1,088)
Consideration received in cash 860
Contingent consideration 717
Transactions costs directly relating to disposal (181)
-------------
Gain on disposal 308
B. Results of discontinued operation
2022 2021
£000 £000
Revenue 411 1,604
Cost of sales (117) (506)
Gross profit 294 1,098
Research costs (6) (39)
Selling, general and administrative expenses (233) (915)
Depreciation expense (10) (50)
Share-based payment charge - (25)
Operating profit 45 69
Finance costs (2) (11)
Profit before tax 43 58
Taxation - -
Profit from operating activities 43 58
Gain on sale of discontinued operation 308 -
Profit for the period 351 58
C. Cash flows from (used in) discontinued operations
Cash flows generated by the Animal Health segment for the reporting periods
under review until its disposal are as follows:
2022 2021
£000 £000
Net cash (used in) / from operating activities (47) 225
Net cash from / (used in) investing activities 505 (19)
Net cash (used in) / from financing activities (6) 30
Net cash flows for the period 452 236
9 Events after the reporting period
On 23 January 2023, 3,068,421 new ordinary shares were issued in settlement of
the quarterly principal of £2.75 million and interest repayment of £0.89
million in respect of the convertible bond, reducing the principal remaining
to £52.25 million.
On 10 February 2023, 2,400,000 new ordinary shares were issued in settlement
of a received Notice of Conversion in respect of £2.85 million of the
convertible bond, reducing the principal remaining to £49.40 million.
On 21 April 2023, 2,906,097 new ordinary shares were issued in settlement of
the quarterly principal of £2.6 million and interest repayment of £0.80
million in respect of the convertible bond, reducing the principal remaining
to £46.80 million.
- Ends -
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