Is the Avacta share price dip a buying opportunity?

At 130p, the Avacta The lowest value of AVCT in May 2021 is 269 US Dollars. Avacta has rallied strongly from 16p, reached during the coronavirus market crash of March 2020. Looking back and Avacta’s share price history looks exactly as I would expect from a chronic early-stage biotech company: some up but mostly down.

Ultimately, the success or failure of Avacta’s development pipeline will determine the future price of the stock. And that pipeline is what will determine whether I should buy Avacta at the current stock price.

There is no good news

There has been no recent news on the pipeline. But the company disclosed that it has no banking relationship with Silicon Valley Bank (SVB) or its UK subsidiary on Monday. No cash on deposit, nor reliance on SVB for funding. That’s good news. Looking back and Avacta raised some efforts in February and January. It also released some positive news from a phase one clinical trial of one of its drugs.

Taking a drug from the lab bench to the market is typically transformational for pharmaceutical and biotech companies like Avacta. Currently the company has one therapy, AVA6000, in phase one clinical trials. It is the AVA6000 that investors will be looking at closely.

Moving from phase one to two, and two to three, will gain interest. Completion of phase three will get attention. So how likely is AVA6000 – a modified form of the common chemotherapy drug doxorubicin – to move through these phases?

I like to start with the basic level for success. According to one report, only 5.4% of developmental oncology drugs jump from stage one to approval. Currently, AVA6000 has been granted Orphan Drug Designation from the US FDA in September 2022. This means that it has been identified as a potential treatment for rare diseases. The success rate of drugs for rare diseases is higher at 17%.

Avacta’s share price changes

Until it can command meaningful revenue, Avacta will continue to turn to investors and lenders for cash. Even when AVA6000 is approved, it takes an average of 10.5 years. If the drug is already licensed for the treatment of rare diseases, profits may be disappointing. Of course, Avacta has other drugs in the pipeline, but the same calculus should apply if it moves to a phase one trial.

A risky drug development company. Most often the development fails. Success takes a lot of time and money, and sometimes it doesn’t produce good results. I don’t think Avacta, at its current share price, is a buying opportunity for me. Here is the reason.

I will not invest in a single development pharmaceutical company. Because the probability of individual success is low, the basket is much larger. Even then it will be part of a larger diversified stock portfolio. The hope is that at least someone can make up for someone else’s failure. But I’ve learned through experience that I’m not comfortable with the inherent risk in stocks like Avacta. That’s true even though I catch a lot.