Is the Avacta share price about to rocket in 2023?

Investing in biotech stocks is a very risky endeavor. But the industry is popular with many investors because of the way biotech stocks can skyrocket on the back of positive news. For proof of this, look for it Avacta (LSE: AVCT), a British life sciences company. Avacta’s stock price is up 168% in the past year.

What caused this increase? And should I take some stock today?

Exciting technology

Avacta is a developer of clinical stage cancer therapies and is listed in the Alternative Investment Market (AIM). The stock took a nosedive during the pandemic after the company used its antigen technology to develop a test kit to detect the coronavirus. As of 2020, the stock is up 1,500% in one year. The stock price then plummeted 84% over the next 12 months after discontinuing the test kit.

The reason for the recent increase is due to increased excitement about Avacta’s core technology. The company’s pre|CISION platform develops drugs that can reduce the toxicity of chemotherapy.

The most promising and advanced potential treatment is AVA6000. It is designed to improve the efficacy of chemotherapy and reduce off-target toxicity. The hope is that this treatment can reduce many of the unpleasant side effects of chemo, including nausea and hair loss.

Alistair Smith, founder and CEO of Avacta, thinks that the AVA6000 could mean “chemotherapy without side effects“.

Positive results

Phase I trials for this drug candidate begin in 2021. In January, the company released results showing AVA6000 was well tolerated. And analysis of tumor biopsies from six patients is recommended “doxorubicin released in tumor tissue confirming tumor targeting potential of pre|CISION technology”. This suggests a degree of efficacy, although more evidence is needed.

The trial also saw “marked decrease“at”typical toxicities associated with the administration of standard doxorubicin chemotherapy“. That shows that it can reduce the side effects of chemotherapy.

This is good news for Avacta and good news for cancer patients. However, it is still early days and the stock remains risky. It will be years (if ever) before this cancer treatment is approved by regulators for use.

Meanwhile, the company remains loss-making. It recorded a pre-tax loss of £29m last year, and a similar loss is expected this year. Later stage trials are more expensive, so I expect losses to increase from here.

The company operates another platform called Affimer, developing alternative treatments for antibody therapy. However, the program is still in the research phase.

My movement

Almost all biotechs have gone one of two ways. The drug candidate failed in trials and disappeared. Or the technology shows enough promise that larger pharmaceutical companies acquire it. The Avacta platform shows enough potential that I think this AIM biotech could be an acquisition target at some point.

Stock prices could rocket if that happens. Alternatively, more positive drug development news could lead to a rally in the stock. However, I do not invest on the basis that the company can be bought. And while the technology looks promising, we’re still years away from an approved treatment.

Overall, this biotech is too speculative for my taste. So, I wouldn’t buy the stock as it is now.