The Avacta (LSE: AVCT) share price burst into life during the spring of 2020. And the share shot up from around 15p in March 2020 to 275p in March 2021 â wow!
The clinical stage biopharmaceutical business was a true Covid share. In 2020, it started developing rapid tests for the coronavirus infection. And the company proved to be good at releasing exciting-sounding updates via the Regulatory News Service (RNS).
A speculative frenzy
The news stream through 2020 details every step in the companyâs operational progress. I think the stock probably became caught up in a speculative frenzy powered by locked-down investors and speculators with time and money on their hands.
Alas, in April 2021 Avacta released its full-year results report for 2020. And the financial figures proved to be less euphoric. Revenue for the year came in at a mere ÂŁ2.1m or so, and the business generated an operating loss of just under ÂŁ19m. However, the company did manage to use all the investor interest to raise much-needed capital of just under ÂŁ54m.
Within a few weeks, the stock began to slide and kept on falling. Indeed, a fair bit of the speculative froth dropped away from the price until it bottomed in March 2022 near 41p. But the full-year results for 2021 didnât offer reassuring figures for sharholders. Revenue for the year was a little over just ÂŁ2.9m, while operating losses had ballooned to around ÂŁ29m.
I might have assumed that the end of the story would be predictable. Perhaps it would have run along the lines of an ever-falling share price. And that would likely have been accompanied by escalating losses and an ongoing series of fund-raising events of decreasing size. Certainly that template has been well-established by prior loss-making outfits.
A resurgent share price
However, by April this year, the share price had shot back up to above 140p. Perhaps the move had been driven by chief executive Dr Alastair Smithâs positive comments in the full-year report. He said heâs âconfident and excitedâ about the immediate and long-term prospects of the business.
For example, he pointed to the potential of clinical trial progress for the firmâs AVA6000 project. And he also emphasised the firmâs pipeline of in-vitro diagnostics (IVD) products and a redeveloped SARS-CoV-2 antigen test âoffering immediate and long-term opportunitiesâ.
Most recently, the company has been raising money to buy Launch Diagnostics, a distributor in the UK IVD market. The company reckons the acquisition will accelerate Avacta’s diagnostics strategy. Itâs âthe first stepâ in a drive towards building an integrated and differentiated IVD business âwith global reachâ the directors said.
More losses ahead
That sounds promising. But the financial reality of the move is yet more dilution for existing shareholders. Itâs all jam-tomorrow stuff again. And City analysts donât look as optimistic, to me. Theyâve pencilled in a net loss of just over ÂŁ30m for 2023.
With the share price near 102p, as I write, itâs down around 14% over the past year after a roller-coaster ride. Itâs possible the business could realise its ambitions profitably in the years ahead. But I see the stock as highly speculative. And I donât think it can make me rich. So Iâm avoiding it.