Capital Network analyst Riccardo Lowi believes AIM-listed biotech firm Avacta Group Plc (LON:AVCT) is “significantly undervalued” give that a commercial agreement for its Affimers technology is expected this year.
In an initiation note on the company, Lowi said his sum-of-the-parts valuation for Avacta produces an equity value of £140mln, against a current market cap of around £50mln.
The SOTP approach values separately Avacta’s reagents business – which uses Affimers for research and diagnostic application – and its therapeutic projects - of Affimer-based drug candidates.
Lowi noted that Affimers are an innovative protein scaffold platform, with potential applications in the life sciences research, diagnostic and therapeutic markets.
The analyst said: “Affimers' technology have not yet been validated by a commercial deal, thus we believe that the announcement of the first commercial agreement to develop a product using Affimers will be a key milestone, allowing for a significant de-risking of this project”.
He added: “However, we would argue that with Avacta, compared to other early stage biotech companies, the risk of failure of the Affimer therapeutic project is partially mitigated by the fact that the diagnostic applications carry a much lower development risk and are much closer to the commercial phase.”
Lowi said he would also “emphasise Avacta's strong management team, starting from the CEO Alastair Smith who has been at the helm of the company since inception.”
The analyst added: “He is supported by a highly competent scientific and commercial team, with extensive experience in the pharmaceutical and diagnostic markets.”
Avacta’s shares share price was steady today at 66.5p.
Capital Network is a subsidiary of Proactive Investors