In the last five months, Avacta (LSE:AVCT) shares have jumped nearly 173%. But this doesn’t tell the full story of this pharma stock. Despite the recent surge, this FTSE AIM share is still down 8.5% over the last 12 months and 3.9% in 2022. This price action points to a volatile asset that rises and falls rapidly with the market. So what’s the reason behind this new spike in interest and should I invest in this medical research stock? Let’s find out. 

The rise and fall of Avacta shares

The pandemic-driven pharma boom is well documented. But Avacta was a huge winner, thanks to its timely antigen test kits that were effective detection tools. Its shares rose an astronomical 1,125% between March 2020 (when Covid was first declared as a pandemic) and May 2021. 

But the rise of variants meant the efficacy of the results dropped, causing the company to pull its test kits from the market in early 2022. Subsequently, the Avacta share price fell 86% to 42p. 

However, in recent weeks, this pharma stock has made a big comeback. Here’s what happened and my verdict on the stock. 

Big developments

Avacta is still primarily a clinical-stage biopharma firm with a focus on cancer detection and treatment. While it has a few other divisions, its most promising oncology treatments are still under development. 

Right now, oncology is one of the fastest-growing medical sectors. The market for such treatments is growing at a compound annual rate of 9.6%, which will generate $292.8bn by 2028. 

And a recent update from the board showed some significant developments in bringing these cancer treatments to market. While it will still take a decade before Avacta’s new AVA6000 chemotherapy system reaches the market, the prospects are promising. 

The innovative treatment focuses on reducing the toxicity of chemotherapy on healthy cells by strengthening its tumour-targeting properties. This is done with the help of a protein marker that’s present in high amounts in cancerous cells. 

The update shows that the treatment will move to Phase II by the second half of 2023. This was earlier than first expected and shows me that Phase I dose escalation data has been favourable so far. 

At the same time, the company also rolled out updates on several key partnerships. Its ongoing relationships with LG Chem Life Sciences and Daewoong Pharmaceuticals both received positive updates. Results from these partnerships are expected to boost the disease detection product line of Avacta over the coming decade. 

Concerns and verdict

Positive business developments and the UK market rebound have triggered this recent jump in Avacta shares. But I don’t think the current growth rate can be sustained without visible financial results. Even if trials are completed, bringing new cancer treatments to market is no easy task. It could take years to reach profitability. 

And financially, the firm is still loss-making, recording a pre-tax loss of £29m last year. This makes this AIM share a very speculative investment. The market is volatile right now and further economic distress in the UK could cause the FTSE 100 and other indexes to tumble. And while its future looks promising, I’ll wait for Avacta shares to show signs of sustained growth across the rest of 2022 before I consider a small investment in 2023. 

The post Up 173%, can Avacta shares continue this incredible run?   appeared first on The Twelfth Magpie.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Allergy Therapeutics (LSE:AGY) is a long-established specialist in the prevention, diagnosis, and treatment of allergies.

The company has a three-part strategy for growth. First, it will continue to develop its European business via investment or opportunistic acquisitions. Then, it has an opportunity to expand its Pollinex Quattro immunotherapy platform in the US market. Finally, it has a pipeline of therapies to develop.

Allergy Therapeutics’ Pollinex is the only subcutaneous immunotherapy (SCIT) pollen product currently registered in the UK. SCIT is the most commonly used and most effective form of allergy immunotherapy. It’s the only treatment available that actually changes the immune system, making it possible to prevent the development of new allergies and asthma.  

Before even considering investing money in the company, let’s see how it has performed recently.

Analysis

Allergy Therapeutics’ European business has expanded in recent years, with particularly strong growth in Austria, the Netherlands, and Spain. In terms of products, Venomil, Acarovac Plus, Pollinex and Pollinex Quattro were the top performers – driving net sales growth of 8% to £73.7m in 2019. The operating margin for the last 12 months is around 12%. That’s lower than GSK (18.5%) but higher than Astrazeneca (10%). Obviously, comparing Allergy Therapeutics to the giants isn’t meaningful; its market cap is 1,000 times lower at just £89m, but it does give us a good comparison for a healthy margin in the pharmaceutical industry.

Management expects this financial year to show further growth in sales, too. Gross margin percentage growth is likely to be similar to the 2019 financial year, though other operating costs are likely to rise reflecting additional cost in technical support needed in preparation for Brexit.

According to a 2018 report published by Credence Research, Inc., the global allergy immunotherapy market was valued at US$1,499m in 2017, and is expected to reach US$3,602m by 2026 – expanding at a compound annual growth rate of 10.1%. Could Allergy Therapeutics capitalise on that potential growth with their products currently in the pipeline? It’s certainly possible.

Key drivers

So, what are the risks, if you’re thinking of investing money in Allergy Therapeutics? Over the next two years, the company will be running several important clinical trials. These have binary outcomes – either success or failure. The company’s long-standing operations will mitigate this risk to some extent. A second wave of the Covid-19 pandemic would also like have a big impact on forecasts.

The company is likely to invest heavily in research and development as it puts new products though each phase of the pharmaceutical pipeline. This is essential to meeting the demand they are expecting for immunotherapeutics in the future. However, success hinges on whether that demand will actually be there when the products become available.

With a small and lesser-known business like this, you should only be investing money that you can afford to lose. That said, Allergy Therapeutics does look like it has a solid plan to make a lot of money in the future.

The post Should you be investing money in pharma stocks? appeared first on The Twelfth Magpie.

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Toby Aston has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Exceeding expectations 

Revenue climbed 19% to just over £20m in the year to the end of June, with pre-tax profit coming in 24% higher at £4.1m. According to CEO Paul Swinney, these numbers exceeded both market and management expectations. 

Much of today’s good news can be attributed to the company’s strong performance overseas. Having soared 43% to £9.6m over the reporting period, international sales now represent almost half of the Snailwell-based small-cap’s total revenue. While a proportion of growth can be explained by favourable currency movements, Tristel’s decision to acquire its Australian distributor has clearly done no harm at all to its top line.

Given that the company is now on the cusp of making huge strides in the North American market, having recently made its first regulatory submission, I think there could be a lot more good news coming for holders in 2018. While some investors were clearly disappointed by the recent announcement that there would be a delay to the approval timetable, Tristel’s management remain unfazed with first sales still expected in the next financial year. This, combined with recent investment in Mobile ODT (which connects point-of-care diagnostic devices to smart phones), not to mention the company’s net cash position (£5.1m) and lack of debt, make me very bullish on the £126m cap’s future.

So, no downsides? Not quite. The huge potential for increasing sales of the company’s chlorine dioxide formulation means that Tristel’s shares are now very expensive to buy and, some would say, priced to perfection. Based on earnings per share of 8.06p over the last year, the company’s stock has a trailing price-to-earnings ratio of 35. Whether that’s a price worth paying is up to you.

Multibagger in the making?

Tristel isn’t the only small-cap stock with a very promising outlook. Another company that’s caught my attention recently has been specialist drug discovery and development business ImmuPharma (LSE: IMM). Based on recent share price performance, it seems I’m not alone. Shares have pretty much doubled from the 50p mark reached one month ago as expectations continue to build surrounding Lupozor — the company’s key drug designed to tackle Lupus, the potentially life-threatening auto-immune disease. With all patients having passed through the six-month stage of testing, it now expects to report top-line results from its Phase III trial in Q1 2018. The fact that the company has already begun to prepare regulatory submissions suggests that management is already confident of a successful outcome. 

Aside from this, interim results in late September revealed the company’s finances to be in good order with net assets of £6.4m by the end of the reporting period. While this continues to be a lossmaking business, research and development expenses are slowly reducing and the £4.1m fundraising in March should give the £129m cap more than enough cash to play with going forward.

A riskier play than Tristel? Sure. Nevertheless, if results from the aforementioned trial go the company’s way, the recent increase in ImmuPharma’s valuation could be just the beginning. 

The post These stellar small-cap stocks could be good for your wealth appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

However, those willing to embrace more risk for the prospect of sizeable capital gains should look further down the market spectrum. One small cap that’s grabbed my attention in recent weeks has been Motif Bio (LSE: MTB) — a dual-listed biotech company (listed on NASDAQ as well as AIM) focused on tackling superbugs that have developed resistance to existing antibiotics.  

You may not have heard of the business before but last week’s news that Iclaprim, a treatment designed for combat acute bacterial and skin structure infections, has made it through the first of two large Phase 3 trials (REVIVE-1) means it should start hitting many investors radars over the next few months. Here’s what you need to know.

Seriously undervalued

Passing through a Phase 3 trial — the final stage in clinical testing — isn’t easy. Required by regulators before a new treatment can be marketed, many companies fail to get this far, underlining how risky investing in biotech stocks can sometimes be. Here, Motif Bio bucks the trend.

REVIVE-1 demonstrated that Iclaprim met two desired end points. First, it delivered early clinical response by reducing the size of skin lesions by at least 20% in 48-72 hours after starting the course of antibiotics. Secondly, it met test of cure targets after patients showed an improvement in the 7-14 days following the completion of treatment.

It gets better. Results suggested that Iclaprim was as effective as Vancomycin, one of the leading treatments currently used. What’s more, any side effects were deemed mild and clinically irrelevant. The knockout punch, however, is that Iclaprim is safe to use with those who have bacterial skin infections and kidney disease, something that can’t be said for its competitor. So, what happens next?

Assuming all goes to plan (results from the identical REVIVE-2 trial are expected in the second half of the year), Motif will file a new drug application to the US Food and Drug Administration in the first half of 2018. A Marketing Authorisation Application will also be finding its way to the European Medicines Agency around the same time. The company hopes to receive approval on both fronts before the end of 2018.

Although CEO Graham Lumsden remains fairly tight-lipped on the matter, there’s also the possibility of the company announcing news concerning licencing deals over the next few weeks, along with details on funding for REVIVE-2.

Multi-bagger in the making?

Right now, Motif Bio has a market cap of just £76m. That’s after the 60% rise in its share price since the end of March and announcement of REVIVE-1 results. It’s also substantially less than valuations attached to industry peers such as Paratek (market cap just short of $600m). While short term traders will come and go, the eventual adoption of Iclaprim in hospitals — generating $1bn of annual revenues in the US alone — could lead to substantial profits for long-term holders.

Of course, buying small-cap companies — even those offering significant upside — still requires patience and a willingness to tolerate volatility. Although I’ve backed the company to succeed (and some brokers now have target prices of 125p), it’s essential that prospective investors consider their willingness to tolerate capital risk before taking the leap.

The post Forget ‘Big Pharma’, my money’s on this smoking hot small-cap stock appeared first on The Twelfth Magpie.

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Paul Summers owns shares of Motiv Bio. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The shares have taken a dip from near £17 in March to around £15.50 today. Is this the last chance to buy a slice of the business for under £16? I can see two scenarios, both of which persuade me that the shares are excellent value at their current level.

Scenario #1

Glaxo’s Q1 results this week — the first to be presented by new chief executive Emma Walmsley — showed rising sales across all three of the group’s businesses: namely, pharmaceuticals (which includes the fast-growing HIV division), consumer healthcare and vaccines.

This diversified model is the legacy of former boss Andrew Witty, and many investors appreciate it because the steady revenues from the consumer business provide a counterbalance to the slightly more lumpy sales (and discovery) of drugs. The group is in good shape, with Ms Walmsley reiterating previous guidance of annual earnings growth in mid-to-high single digits through to 2020.

Analysts’ forecast earnings for the current year give a price-to-earnings (P/E) ratio of 14. This looks cheap to me, in view of the company’s medium-term guidance on earnings growth and a dividend yield of over 5% on top. All things being equal, I would expect the shares to continue their overall upward trajectory, as the market further warms to the group’s prospects.

On the question of whether this is the last chance to buy the shares at under £16, it’s perhaps worth noting that even if the price were to remain at its current £15.50 for the next 12 months, the value of your investment would have advanced to £16.30 due to the juicy 80p dividend.

Scenario #2

Despite the bright future of Glaxo’s diversified business model, some investors are convinced that returns for shareholders could be even better, if the company followed an altogether different strategy. Last year, a number of major shareholders — including celebrated fund manager Neil Woodford — called on Mr Witty to break up the group.

They argued that the sum of the parts was worth significantly more than the whole. Woodford and his team wrote: “All four of Glaxo’s major component businesses could be FTSE 100 companies in their own right, and we strongly believe that any future break-up would unlock considerable shareholder value”.

Mr Witty resisted the calls and new boss Ms Walmsley indicated this week that she was “committed” to the group’s existing structure. However, it’s early days in her tenure and I wouldn’t be surprised if further down the line there is corporate activity — whether demergers or sales — that realise value for shareholders well in excess of £16 a share.

In summary, whatever Glaxo’s future direction, I believe the shares represent excellent value at their current level.

The post Last chance to buy GlaxoSmithKline plc for under £16? appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

G A Chester has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.