Avacta gains capability for sales pick-up

The group, which has developed analytical technology to speed up and reduce the cost of drug development, hopes sales of its flagship Optim device will take off after securing big name distributors in North America and Japan.

The York-based company, spun out of the University of Leeds in 2004, said it now has the manufacturing capability to cope with a pick-up in sales, after moving half its workforce to a facility in Wetherby.

“We’ve made good, solid progress,” said chief executive Alastair Smith. “There’s always more to do but we’ve got all the distributors in place and we’ll be expecting to see some delivery from them over the next six to 12 months.”

Avacta said revenues increased by 12 per cent in the six months to the end of January to £1m. Pre-tax losses halved to £597,000.

Analysts at house brokers XCap see the company breaking even in its next financial year, ending July 2012.

Mr Smith said the group now has a solid sales pipeline, with 80 potential sales compared with 30 six months ago.

Avacta launched its Optim diagnostics device in April 2009, but that coincided with the global financial crisis, meaning orders have been slower than it hoped for.

Optim allows drug developers to gain vital information about compounds using tiny samples, more cheaply and quickly than other methods. Optim can do tests simultaneously – the work of three or four instruments – in just 75 to 90 minutes. Rival processes can take about 18 days.

Avacta has sold a total of 14 Optim devices since its launch, with 10 installed.

“It puts us in a reasonably comfortable position for this financial year, having the targets we set ourselves,” said Mr Smith. “Clearly, it’s step up and do more next year.” Avacta is pinning its hopes on distributors’ deals in Japan, North America and China.

In February, Avacta struck a “transformational” deal with Pall Corporation for the technology giant to market its products and services in the US and Canada.

Last month Avacta also struck a deal with £5.8bn turnover group DKSH Japan for the company to exclusively market its flagship Optim device in Japan.

In February, it also signed Cold Spring Biotech Corp as its distributor covering mainland China, Hong Kong and Taiwan.

“We think we’ve appointed good distributors,” said Mr Smith. “We are working very closely with them. We are able to get out of these agreements if they do not perform to the sales targets we agreed with them. All the distributors have committed to purchases.”

Avacta’s AX1 blood testing device, aimed at the pet market, has been hit with problems manufacturing its disposable plastic test cartridges. The outsourced manufacturer did not meet Avacta’s quality standards, said Mr Smith, and while the problem is being resolved, the company has started marketing the device to big veterinary groups.

“The key is that the fundamentals are right,” said Mr Smith. “The revenues are growing and the losses are diminishing quite rapidly.

“We can manufacture the devices. All the bits of the jigsaw are there.

“I would not say (the pharmaceutical market) is back to where it was but it’s definitely easier.”

XCap said in a note to clients: “The fundamentals of the business look sound: the heavy cash burn product development phase is completed, revenues are growing, operating losses are falling and high-quality commercial partners are being signed up.

“There is clear growth potential for the current products and exciting potential from further developments.

“The key issue now is to see how quickly Pall Corporation and the other recently-appointed licensees get their sales forces to work.”

Avacta shares closed up 0.13p at 1.29p.

Facility to take group forward

Avacta’s new manufacturing facility in Thorp Arch in Wetherby aims to equip the group for a pick-up in sales.

Established in October, about 25 of the group’s 50 staff are based there in office and manufacturing facilities.

Avacta still has its registered office at York Science Park in York.

“There’s the possibility we will move it all into Thorp Arch,” said chief executive Alastair Smith.

“It’s very cost-effective compared with the university.”

Avacta already has significant space at Thorp Arch to manufacture its flagship Optim drug development device. Mr Smith said it plans to expand further at the site to make its AX-1 blood testing device for the veterinary market.

Avacta was co-founded by Mr Smith in January 2004 as a University of Leeds spin-out.

It floated on the Alternative Investment Market in 2006.