Avacta ready to ride a wave of product success

DIAGNOSTICS specialist Avacta said it is on the cusp of commercial success despite delays in launching a key veterinary product.

Chief executive Alastair Smith said the Wetherby-based company is now in its best-ever position, adding the imminent launch of its AX-1 animal diagnostics device should boost momentum.

The company, spun out of the University of Leeds, yesterday posted a 72 per cent surge in revenues to £1.7m for the six months to the end of January.

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Pre-tax losses of £506,000 improved on losses of £597,000 a year earlier.

However, analysts at house broker Panmure Gordon increased their forecast for annual losses because of the AX-1 delays.

“Overall, there has been pleasing progress in the Optim business line but the company continues to experience delays in its launch plan for AX-1 which necessitates us to downgrade our forecasts for the year,” said Panmure analysts.

“We downgrade our price target to 1.75p per share but retain our buy recommendation.”

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Despite the downgrade, shares in Avacta increased 7.2 per cent to close at 0.815p as investors welcomed the commercial traction.

The AX-1 launch was delayed by quality problems with its disposable cartridges, which Avacta said it has now resolved. The device should allow vets to test blood samples in their own surgeries.

“AX-1 is now progressing,” said Dr Smith. “We are all aware of the delays but we’ve been able to validate it very thoroughly. We have to launch the product in a perfect state so that it makes a very good impression. I’m not apologetic about the delays.”

He said the launch will “certainly be later this year”, adding pre-marketing is going well. But he said with vets coming under pressure as owners cut back on pet treatments, “we’ve got to be creative with the business model”.

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Avacta said sales of its flagship Optim device are ahead of target, with 13 units shipped in its first half. Optim is designed to speed up and reduce the cost of drug development. It claims to deliver vital information tens times faster than other approaches using much smaller samples

The devices sell for £92,500 each – Avacta earns £55,000 of this, with distributors taking the rest. It is targeting 25 Optim sales this year. Dr Smith said brokers expect the company to break even in the next year or two.

Finance director Tim Sykes said: “There’s substantial progress towards that kind of position and it’s very high on our agenda.”

Dr Smith added: “We are in a very good position with the core business moving towards profitability. There’s a lot more in the locker to come. We’re probably in the best position we’ve ever been in.”

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Avacta ended January with £5.8m of cash – enough for three years.

Panmure analysts said: “Progress is evident in many parts of the business but, as is usually the case with small growth companies, it was not without some ups and downs, particularly new lines of business.

“Although technically it is possible for AX-1 to launch in June or July, we are viewing the first few sales to be akin to beta site placements which will not generate a lot of revenues. As such we remove AX-1 related revenues from our forecasts.”

But they urged investors to see the long-term story for the company. “Investors must be careful not to over-react with small growth companies where a single contract win or loss may result in significant swings in operating performance, especially when looking at half-year results.”

Support for medical park

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Avacta has backed calls for a dedicated medical park in Leeds. It moved from York to Thorp Arch business park in Wetherby last year.

“They are planning on building a health innovation park and that would be good for Leeds as well as York and the surrounding areas,” said chief executive Alastair Smith. “When we grew from being very early stage to being something larger there was nowhere in Leeds to go.”

The concept has also been backed by Leeds medical devices firm Surgical Innova-tions and York’s Tissue Regenix.