Investment case

Avacta is a clinical-stage UK-based life sciences company developing exquisitely targeted therapies for cancer, enabled by its proprietary pre|CISION technology platform. pre|CISION is a highly specific substrate for a tumour associated enzyme (fibroblast activation protein, FAP) which, when conjugated to a cytotoxic drug, can be used to improve efficacy, reduce systemic toxicities, and optimise dosing. Lead asset AVA6000, a pre|CISION doxorubicin conjugate, has completed Phase Ia, demonstrating proof of concept for the platform and is the precursor to a next-generation pipeline of peptide- or antibody-drug conjugate drugs, which also includes a novel class of pre|CISION Affimer-drug conjugates (AffDC). Affimer proteins are novel synthetic biologics with several advantages over antibodies that can be applied in developing engineered therapies. Avacta listed on AIM in 2006, with the acquisition of the Affimer technology (in 2012) and in-licensing of pre|CISION from Tufts University (in 2018) creating the current business. Since 2022, Avacta has raised c £40m (gross) in equity with a further £55m via a five-year convertible bond (£30.6m principal outstanding at end-October 2024). Avacta employs 41 FTEs and is headquartered in White City, London (UK).

Valuation

Our new risk-adjusted NPV (net present value) valuation includes the disclosed pipeline assets plus an indicative placeholder valuation for the pre|CISION platform. The rNPVs are summed and netted against unallocated operating costs and net cash. Our AVA6000 rNPV is blended, comprising an orphan opportunity which Avacta could potentially commercialise alone and a larger commercial opportunity where a partner is likely needed. Given there are few details on AVA6103 and AVA7100, these are currently placeholder valuations. Our rNPV based valuation is £439m, equivalent to 119p/share (111p/share fully diluted).

Financials

Avacta’s focus on Therapeutics means its Diagnostics division will be divested. Pending any transaction(s), our forecasts still include a full contribution from this division (although it does not contribute to our valuation), so these will be subject to future review (particularly Revenues and SG&A). End-June 2024 cash was £32.5m, including the March 2024 £31.1m (gross) fundraise, which should be sufficient to reach key value inflection points for AVA6000 and could be boosted near term via deals (for Diagnostics or other partnering) or a NASDAQ IPO.

Sensitivities

Avacta is now a therapeutics business, and in common with most innovative drug development companies, the main sensitivities relate to clinical trial outcomes, navigating regulatory hurdles, ensuring timely and sufficient financing, concluding partnering discussions successfully and, eventually, gaining attractive pricing and reimbursement, and executing commercial plans. Financing is a perennial industry-wide issue and positive clinical data will be key to attracting equity funding and/or commercial deals, which are necessary to fund and progress the wider pipeline. 

Avacta: deploying a ‘Trojan horse’ in cancer

Avacta’s investment case is centred on its proprietary pre|CISION drug delivery platform, which aims to reduce the efficacy/safety trade off seen with many potent therapeutics thus expanding their reach. The pre|CISION platform is being harnessed to develop novel, highly targeted cancer drugs, and has been validated by lead programme AVA6000 (FAP-Dox), a peptide-drug conjugate of doxorubicin. Early clinical data for AVA6000 have shown selective activation at the target tumour site, resulting in lower toxicities than standard doxorubicin, and improved tolerability. A Phase Ib dose expansion is underway in three cohorts (soft tissue sarcoma, salivary gland cancer, and triple negative breast cancer, TNBC) where doxorubicin is effective and commonly used, despite its cardiotoxicity; results are anticipated in Q225. An AVA6000 Phase II study in a yet to be selected orphan indication could start in H225, with plans for parallel development in TNBC. Second pre|CISION asset AVA6103 (FAP-EXd), a PK optimised peptide-drug conjugate of exatecan, is designed to improve its therapeutic index. AVA6103, like AVA6000, is highly applicable to certain breast cancer settings. IND-enabling studies are ongoing, with Phase I initiation targeted for early-2026. Clinical and pipeline catalysts should provide multiple value inflection points over the next 12-24 months, with indication-specific clinical proof of concept data key to unlocking partnerships. Our valuation is £439m, or 119p/share.

Avacta’s growing understanding of FAP (fibroblast activation protein-α) biology has increased the potential scope of its proprietary pre|CISION technology. The pre|CISION platform uses a highly specific tumour-associated substrate only cleaved by FAP, a transmembrane protein expressed by cancer associated fibroblasts (CAFs), to target the delivery and concentrate highly potent drug payloads in the tumour microenvironment (TME). This potentially enhances efficacy, limits peripheral exposure, and reduces systemic toxicities of proven cancer therapeutics such as doxorubicin (AVA6000) and exatecan (AVA6103).

Advances in pre|CISION chemistry have given Avacta a toolbox to modulate key properties of its pre|CISION-enabled molecules, eg tuning the pharmacokinetic profile with alternative capping groups; effecting sustained payload release with additional linkers; and enabling more specific tumour targeting with Affimer molecules. The coupling of Avacta’s pre|CISION and Affimer technology platforms has created a new class of engineered biotherapeutic, AffDCs or Affimer-drug conjugates, which leverage the tumour-targeting ability of Affimer molecules with FAP-dependent payload activation of the pre|CISION technology to address many of the limitations of antibody-drug conjugates (ADCs).

Avacta’s translational research and preclinical evaluations have also uncovered important insights into the distribution of FAP expression at the tumour-stroma interface and the mechanism of the bystander effect. Together, these confirm that pre|CISION-enabled drug payloads concentrate in the TME irrespective of tumour FAP expression level and can kill both FAP-positive and FAP-negative tumours. This expands the relevance of the pre|CISION platform to a broader range of solid tumours, including those with low FAP expression. These findings are now being deployed in creating the next generation of novel pre|CISION-enabled TME targeting therapies.

Creating a highly innovative therapeutic company

Over the course of 2024, Avacta has made significant strides in its evolution into a pure-play life sciences company focused on developing novel targeted oncology therapies. Data from lead programme AVA6000 has contributed to a better understanding of both this product and the biology of fibroblast activation protein-α (FAPα), the transmembrane protease enzyme that is central to Avacta’s pre|CISION technology platform. These data have helped refine the clinical development plan for AVA6000 and define a wider strategy for a portfolio of next generation pre|CISION enabled programmes.

A change in management, with Christina Coughlin MD PhD appointed CEO and Shaun Chilton as Chairman, has catalysed a notable shift in emphasis and direction. The planned divestment of the Diagnostics division is underway, with several indicative offers received. This is another step in streamlining the business focus onto fully exploiting the potential of the proprietary pre|CISION platform, beyond AVA6000, to create the next generations of highly novel tumour targeting drug conjugates, supported by advances in understanding of FAP biology and by recent preclinical and clinical data.

In common with AVA6000, these novel pipeline programmes leverage pre|CISION technology for delivery of potent drugs directly to tumours, where they are activated in the TME. These programmes offer the potential of improved anti-tumour activity with reduced systemic toxicities and an optimised therapeutic window for otherwise highly potent drugs with tolerability issues. In the case of Affimer-drug conjugates (AffDCs), a new class of engineered biotherapeutic, there is also the potential to overcome the limitations of antibody-drug conjugates (ADCs) and address patients with hard-to-treat tumours that have lower or more heterogeneous FAP expression.

Avacta’s recently unveiled pipeline has brought to the fore two new pre|CISION assets, AVA6103 and AVA7100, which have supplanted the prior AVA6000 follow-ons. These are exemplars of Avacta’s strategy to demonstrate the extent of the platform potential as well as having a clear and complementary development plan. While the chemistry of pre|CISION peptides lends itself to delivering a variety of different warhead types, both new programmes incorporate exatecan, the most potent topoisomerase I inhibitor to be evaluated in the clinic. We note that AstraZeneca/Daiichi Sankyo’s Enhertu (trastuzumab deruxtecan), a tumour-agnostic HER2-directed ADC mainly used to treat breast cancer, is based on an exatecan derivative and posted revenues of $2.57bn in 2023.

These various activities are part of a broader strategy to increase Avacta’s appeal to global specialist healthcare investors and to help secure sustainable funding for further pipeline development. Avacta’s cash and equivalents of £32.5m at end-June 2024 provide funding through key value inflection points for AVA6000; however, additional resources will be required to fully fund the next stage of AVA6000 clinical development (larger Phase II and Phase III trials to support approvals) and to move the next wave of pipeline assets – Gen Two PDC and Gen Three AffDC programmes – into the clinic. The sale of the Diagnostics division and/or potential business development deals could go some way to bridging the funding gap, and management is exploring the merits of seeking a dual listing on AIM and NASDAQ.

pre|CISION: the backbone of Avacta’s pipeline

Avacta’s pipeline (Exhibit 1), as unveiled at its R&D Spotlight: Next Generation of pre|CISION Medicines event on October 30, includes lead clinical programme AVA6000 (a doxorubicin peptide-drug conjugate, PDC), plus two preclinical next generation programmes that were first revealed ahead of the 2024 EORTC-NCI-AACR Symposium (October 2024 Lighthouse): AVA6103, a 2nd generation PDC targeting topoisomerase I via an exatecan payload, and AVA7100, an Affimer-drug conjugate (AffDC) programme, a novel class of engineered biotherapeutics.

Exhibit 1: Avacta’s therapeutic pipeline

Source: Avacta

Avacta’s proprietary pipeline assets are all enabled by its pre|CISION technology platform which allows the delivery of potent therapeutics (‘warheads’ or ‘payloads’) specifically to the tumour microenvironment (TME) where they are activated. This means that systemic exposure of these toxic cancer drugs is minimised, allowing dosing to be optimised (eg higher or more frequent dosing) to improve patient outcomes.

AVA6000 is currently the sole clinical asset, which has shown a clean safety and tolerability profile in Phase Ia, as well as encouraging anti-tumour effects which will be further explored in later-stage studies. This initial study has also yielded important data that support the mechanism of action and applicability of the pre|CISION platform, which could unlock an extensive opportunity to develop next-generation targeted cancer treatments. Successful clinical trials would be transformative for Avacta.

Partnering is a central part of Avacta’s strategy as it expands its pipeline. This includes opportunities for out-licensing for later-stage development and commercialisation of proprietary assets as well as collaboration deals where innovative next-generation cancer therapeutics are created by combining the pre|CISION technology with novel warheads. Management have clearly stated that they intend to optimise the economics, and timing, of any potential co-development or licensing deal for its assets; in Avacta’s view, achievement of clinical proof of concept in a given indication will be a critical hurdle.

Avacta’s most recent deal is a strategic collaboration with Tempus AI, under which it can access Tempus’ extensive real world datasets of tumour samples and clinical data from over 200k patients with broad ranging cancers. Avacta hopes to interrogate these data to better understand the TME and FAP biology (including FAP^high and FAP^low expression) across multiple solid tumour settings. By assessing the co-expression of FAP with genes that predict payload sensitivity, Avacta should be better able to identify all specific patient populations that could be addressed by its current (and potential) pre|CISION-enabled programmes.

Avacta also has a number of legacy collaborations that were executed to exploit the versatility of its pre|CISION and Affimer platforms across a breadth of potential applications, and to advance the science around and potential utility of the platform. These typically have been fully funded, represent additional or incremental indications and, importantly, externally validate the platforms’ propositions. Active partnerships include POINT Biopharma (Eli Lilly) for the development of FAP-activated radiopharmaceuticals (the most advanced asset 177Lu-PNT2004 is in Phase I); a multi-target Affimer protein development agreement with LG Chem Life Sciences which included an extension to incorporate Affimer XT systemic half-life extension technology and exercise of a renewal option, and the AffyXell Therapeutics joint venture with Daewoong Pharmaceutical in which Avacta currently holds a 25% equity stake.

What is the pre|CISION platform?

Avacta’s proprietary pre|CISION platform enables the delivery of therapeutic warheads/payloads specifically to the tumour microenvironment (TME). The TME plays a central role in mediating cancer progression and development of treatment resistance, and while it is extremely complex and can be highly heterogenous, there are key, and consistent, differences with healthy tissues. pre|CISION exploits the fact that fibroblast activation protein-α (FAPα), an extracellular protease enzyme, is highly upregulated in over 90% of solid tumours compared with much lower expression in normal tissues (by a factor of 10x to 100x). FAP is selectively found in a membrane-bound form on the surface of cancer associated fibroblasts (CAFs) which comprise a large portion of the tumour stroma, itself an important component of the TME. Through immunofluorescence imaging studies Avacta has ascertained that FAP overexpression is highest at the tumour-stroma interface, with FAP expression levels dropping with greater distance between the CAFs and tumour cells.

The pre|CISION technology leverages this tumour-specific FAP expression by modifying potent therapeutics so that they remain inert until encountering the FAP enzyme in the TME. This FAP-enabled drug release mechanism is achieved by attaching a highly specific substrate (a peptide moiety linker) that is selectively cleavable by FAP to the therapeutic warhead. The warhead is only activated in the presence of FAP (following substrate cleavage) and so becomes concentrated in the TME where it can destroy the target tumour cells, sparing healthy tissues. This reduction in systemic exposure has the potential to improve outcomes for patients by reducing the off-target side effects and toxicity of various cancer therapeutics, and by enabling dose optimisation to improve efficacy.

The two vital properties of a pre|CISION molecule are its ability to: (1) prevent the toxic warhead from entering non-target healthy cells; and (2) ensure the targeted delivery and release of the warhead at the tumour site through FAP cleavage. Once released in the TME, the warhead uses the fact that FAP is most overexpressed at the tumour-stroma interface (Exhibit 2) to exploit the bystander effect and kill both FAP-positive CAFs and FAP-negative tumour cells.

Exhibit 2: FAP expression level linked to tumour proximity

Source: Avacta

Avacta’s pre|CISION platform is also very flexible and can be used to create a variety of highly tailored therapeutic conjugates with specific characteristics. These include peptide-drug conjugates (PDCs) – such as lead clinical programme AVA6000 (a pre|CISION-doxorubicin conjugate) – as well as biologic conjugates (Exhibit 3). The latter can be based on antibodies (ADCs) or incorporate Affimer proteins (AffDCs), antibody mimetics to which Avacta owns the IP.

Exhibit 3: pre|CISION-enabled warheads are released specifically in the TME to optimise delivery

Source: Avacta

The pre|CISION platform is the result of a collaboration with Tufts University, Boston and is based on drug conjugate technology developed by Professor Bill Bachovchin. Avacta licensed the foundational IP around the pre|CISION PDC from Tufts University and holds an exclusive licence to the jointly developed IP surrounding the use of the pre|CISION peptide as a linker for biologic-drug conjugates. Tufts University is eligible for modest milestone payments and royalties on eventual commercial revenues. The broad IP estate covers the pre|CISION technology and programmes, with recently developed improvements (including capping groups and linkers) covered by separate patents.

How does pre|CISION differ from other FAP targeting approaches?

The mechanism of action of pre|CISION PDCs is different to other FAP-targeting PDC drug candidates, which typically incorporate a peptide that binds to FAP as the target tumour antigen. In contrast, the pre|CISION peptide is a substrate for the FAP enzyme; on binding, this peptide is cleaved, releasing the cytotoxic warhead component of the pre|CISION PDC into the TME.

FAP’s promise as a tumour antigen target was connected to its overexpression in tumours in comparison to healthy tissues; however, FAP is only expressed in the stroma in most solid tumours and not by the tumour cells. Hence the bystander effect is key. pre|CISION PDCs can leverage the tumour specificity of FAP via the bystander effect as FAP is necessary for the extracellular release of the warhead into the TME, where it can kill both FAP-positive CAFs and neighbouring FAP-negative tumour cells. The bystander effect is also employed by FAP-binding peptide-targeted radiotherapy ligands, such as Novartis’ 177Lu-FAP-2286 (currently in Phase I/II, with preliminary efficacy data), where it is the radioligand that is released in the TME and it exerts its effect on both CAFs and tumour cells. Many other approaches, such as traditional ADCs (which release their warhead intracellularly) or bispecific antibodies (that incorporate FAP binders) have not worked as their impact is limited to FAP-positive CAFs, with little to no effect on tumour cells.

pre|CISION chemistry comes of age

The initial development focus of the pre|CISION platform was on first generation small molecule PDCs to act as proof of concept, and this has successfully been achieved with the first molecule, AVA6000 (FAP-Dox) a PDC form of doxorubicin. The AVA6000 Phase IIa dose escalation trial demonstrated: (1) targeted doxorubicin release in the TME; (2) improved safety and tolerability compared with standard doxorubicin with no dose-limiting toxicities nor, importantly, any cardiac safety signal identified; and (3) preliminary signs of clinical activity with multiple RECIST responses observed in patients with high grade soft tissue sarcomas and salivary gland cancers. Data from this study were presented at the 2024 American Association of Cancer Research (AACR: April 2024 Lighthouse) and European Society of Medical Oncology (ESMO: September 2024 Lighthouse) meetings, and are explored in greater detail later in this report.

Findings from the AVA6000 Phase Ia study have dual significance; they support the further clinical development of this asset as well as validating the broader application of the pre|CISION platform to develop a wide range of tailored anti-cancer therapeutics. Doxorubicin, despite its cardiotoxicity limitations (which can have a life-long impact in those patients successfully treated for their cancer) and largely generic status, consistently posts annual global sales of over $1bn. Hence AVA6000’s clinical profile to date, showing a significant reduction in severe toxicities that limit doxorubicin dosing and in mild-to-moderate side effects that impact patient quality of life, should be attractive to potential partners that are well-positioned to fully exploit this opportunity. A similar rationale underpins the potential for creating and developing an extensive range of novel pipeline opportunities. These include second- and third-generation formats (Exhibit 4) that employ more advanced chemistry to confer additional advantages and expand the applicability of the pre|CISION technology to a more extensive range of cancer indications, including through the delivery of engineered biologics.

Exhibit 4: Evolution of pre|CISION chemistry

Source: Avacta  Note: FAP = fibroblast activation protein-α; PEG = polyethylene glycol; MMAE = monomethyl auristatin E

Designing a pre|CISION therapeutic

A computational chemistry approach to structure-based drug design is the foundation of Avacta’s next generation pre|CISION programmes. It has improved the understanding of how therapeutic payloads can be pre|CISION-enabled to be optimally cleaved by FAP and how the properties of the pre|CISION drug conjugate can be enhanced to create the desired therapeutic profile. Through the linkage of the pre|CISION peptide to a warhead, either with or without additional chemical linker or capping groups, delivery and the pharmacokinetics (PK) of the active therapeutics can be modulated making high tumour concentration with minimal peripheral exposure possible.

The design of a pre|CISION-enabled therapeutic is an iterative process involving multiple steps. Computational design algorithms support extensive modelling of the chemical structure and functional groups of a payload to identify the specific site where the pre|CISION peptide could be attached to facilitate payload release through FAP-specific cleavage. A FAP docking model, based on the 3D crystalline structure of the FAPα enzyme and its binding site, is employed to enhance understanding of which potential pre|CISION molecules fit best to permit membrane bound FAP cleavage. Evaluation of the structure-activity relationship (SAR) allows chemical alternations to be made to the groups around the pre|CISION peptide to modify FAP activity and cleavability, as well as to fine tune the properties of the molecule that impact PK and the in vivo profile.

Avacta has so far FAP-enabled ten different warheads building up a database of multiple pre|CISION compounds that include c 40 capping groups (which alter the PK of the conjugate) and c 20 self-immolative linkers (required for FAP cleavage with certain warheads and can be used to modify FAP affinity and activity). These have all been characterised through computational simulations to evaluate molecular binding and how they dock into the FAP structure. A key consideration is how close the warhead can get to the FAP cleavage sequence; this typically depends on the size of the molecule, and often defines whether a spacer group is required. Consideration is also given to how long the conjugate and the active warhead are likely to remain in the TME, and this informs whether PK alterations, achieved through an alternative capping group, are needed to either allow the sustained release of the warhead or to slow plasma clearance.

Potential candidate molecules that meet the internal hurdle are also evaluated in vivo to investigate key PK parameters and cytotoxicity, with some selected for further characterisation in vitro and in vivo to establish preclinical efficacy and safety in a wide range of FAP tumour expression models with low serum FAP (including co-cultures of tumour cells and CAFs) to recapitulate the human TME.

pre|CISION: the second generation (Gen Two)

AVA6000 is a relatively simple pre|CISION PDC, with the FAP-cleavable peptide attached directly to the cytotoxic drug doxorubicin. Avacta’s second generation pre|CISION therapeutics include additional chemical groups that broaden the applicability of the delivery platform to a wider range of payloads. Linkers which chemically join the pre|CISION substrate to the warhead are one such example; a linker can assist with, and can adjust, the interaction with the FAP enzyme.

Second generation pre|CISION PDCs have two key benefits:

• extended PK achieved with the addition of an alternate capping group: this alters the physical properties of the conjugate and/or released warhead allowing for a longer plasma half-life and ensuring longer retention or sustained release of the warhead in the TME; and
• modulated warhead cleavage rate enabled by additional linkers: inserting self-immolative linkers between the warhead and pre|CISION peptide adjusts the release kinetics [kact/Km] of the FAP enzyme.

These advances in pre|CISION chemistry expand the range of payloads that can be deployed to now include prior clinical failures, due to therapeutic index or PK profile, and therapeutic classes, such as cancer pathway targeted therapies or immune modulators, where more consistent delivery to the TME is beneficial.

Avacta’s newest development candidate, AVA6103, is a novel second-generation PDC programme currently in IND-enabling studies. AVA6103 is a pre|CISION-enabled PDC that targets the delivery of exatecan to the TME where, following FAP cleavage, it induces DNA damage promoting tumour cell death. Exatecan is the most potent topoisomerase I (Topo I) inhibitor studied in the clinic, having demonstrated clinical activity in multiple solid tumours (including breast, gastric, lung, and pancreatic cancers). However, clinical development as a monotherapy was discontinued by Daiichi Sankyo due to severe dose-limiting toxicities (neutropenia and thrombocytopenia) and a short half-life (around ten hours).

AVA6103 is designed to take advantage of the efficacy profile of exatecan while overcoming its limitations by modifying its PK profile and improving tolerability by reducing peripheral exposure of released exatecan in healthy tissues. Preclinical in vivo data presented at the 2024 EORTC-NCI-AACR Symposium showed that AVA6103 successfully targets exatecan delivery to the TME (increasing its therapeutic index 75-fold), where it accumulates and inhibits tumour growth; complete responses were also observed in a preclinical model.

Avacta has confirmed that it is targeting the US IND application for AVA6013 in Q425/Q126, with plans for Phase I development to initiate in Q126. Target indications are not yet confirmed but are likely to be FAP-positive cancers that are sensitive to Topo I inhibition, and could include gastric cancer, triple negative breast cancer (TNBC), pancreatic cancer and small cell lung cancer (SCLC). The Avacta/Tempus collaboration will be deployed in identifying the addressable patient populations for AV6103.

pre|CISION: the third generation (Gen Three)

The third generation of pre|CISION-enabled therapeutics are the pre|CISION biologic-drug conjugates. These employ the same FAP-mediated TME-specific warhead release mechanism but can incorporate a diversity of biologic molecules, from traditional monoclonal antibodies to Affimer proteins to antibody fragments. Like the earlier generations, third generation pre|CISION therapeutics offer the potential of reduced systemic toxicities and improved efficacy, but with the ability to further optimise the specificity of payload delivery and to potentially leverage complementary mechanisms of action to enhance tumour killing.

pre|CISION biologic-drug conjugates are engineered to deliver the active payload specifically to the tumour/TME through two mechanisms: (1) FAP-activated warhead release in the TME and (2) direct targeting of tumour antigens by the biologic component. This dual delivery of the warhead should not only contribute to meaningfully reducing systemic toxicities, but importantly broadens applicability of the pre|CISION platform to treating solid tumour types associated with lower levels of FAP expression (FAP^low).

Another feature of this drug class is the ability to increase the anti-tumour effects through several mechanisms. These include:

• further half-life extension by attaching pre|CISION-enabled warheads to the Fc domain of an antibody, or by sequestering the drug molecules prior to FAP-activation for sustained release;
• leveraging complementary mechanisms of action such as engineering the biologic to prevent tumour signalling (eg blocking PD-1/PD-L1 signalling);
• exploiting the bystander effect, whereby extracellular release of the payload can affect any surrounding (bystander) tumour cells, whether or not they express the target antigen.

Avacta’s most advanced third generation programme is based on Affimer-drug conjugates (AffDC), a novel class of engineered biotherapeutics. More detail is provided on Affimers in an upcoming section of this report. In essence they are small proteins engineered to bind highly specifically to a target molecule in an analogous way to an antibody, but with several advantages. The most important of these in the context of AffDCs are their significantly smaller size which means they can penetrate deeper into tumours; specificity of payload release mechanism avoiding off-target effects; ability to harness efficiently the bystander effect; greater binding affinity which can be tuned to specific cancer targets (including those that are challenging for antibodies); and ability to make precise modifications or create dimers allowing production of multi-specific therapeutics and/or molecules that incorporate both the Affimer and pre|CISION technologies.

Avacta’s first third-generation AffDC is AVA7100, which comprises a novel FAP-Affimer dimer conjugated to a pre|CISION PDC of an undisclosed payload via standard ADC conjugation techniques. The FAP-Affimer dimer incorporates a non-internalising FAP-binding Affimer monomer (targeting the payload to the TME) coupled with an albumin binding Affimer (extending the AffDC plasma half-life allowing sustained payload release). There are several potential payload options: Avacta has presented initial data for an AffDC incorporating exatecan.

AVA7100 is designed to increase the specificity of warhead delivery; this, coupled to a drug-to-Affimer ratio (DAR) of four, should make it possible to treat FAP^low cancers while minimising systemic exposure. Potential target indications for AffDCs include those with highly heterogeneous FAP expression, eg squamous cell cancers, non-small cell lung cancer (NSCLC), and colorectal cancer (CRC).

Preclinical data presented at the 2024 EORTC-NCI-AACR Symposium showed that exposure of AffDCs to tumour cell line or CAF cell co-cultures resulted in warhead release via FAP cleavage and tumour cell killing through the bystander effect. Avacta has confirmed that it anticipates selecting the AVA7100 development candidate in H225, followed by a potential IND application in H226.

Affimers: engineered to be better than antibodies

Affimer molecules are a novel class of biologic with many features that make them ideal as potential therapeutics. They are small proteins that can mimic the properties of antibodies, such as specific binding to a target molecule of interest, but have several competitive advantages conferred by their much smaller size and simplicity. Avacta acquired the IP to this technology platform in 2012.

Monoclonal antibodies (mAbs) represent some of the most potent, and most commercially successful therapeutics, with several achieving multi-blockbuster status. According to Evaluate Pharma, 21 of the top 50 best-selling drugs in 2024 will be fully human or humanised mAbs, despite patent expiration of key drugs. Nevertheless, this belies their many limitations, including their large relative size limiting tumour penetration, complex architecture, manufacturing cost, pH and temperature instability, and challenges in ensuring inter batch consistency.

Affimer molecules are also protein-based structures with the desired specificity and affinity of targeted therapeutics, but with improved physical characteristics to mAbs (Exhibit 5). Unlike mAbs, Affimer molecules can be manufactured simply, cost effectively, and rapidly using bacterial cell culture following screening of pre-existing phage display libraries (c 10 billion candidates) rather than mammalian cell cultures following animal immunisation to raise an immunological response. They also have no post-translational modifications, and a lower risk of immunogenicity as the core Affimer protein (Stefin A) is human.

Exhibit 5: Affimer platform offers multiple advantages over antibodies

Source: Avacta, Trinity Delta

The ability of Affimer proteins to bypass many of the limitations of mAbs means that they can be used where antibodies cannot. Affimers can be generated to bind to proteins that are intractable to antibodies, addressing a broader spectrum of potential drug targets. Their size is 10-20% that of an antibody – Affimers have an antigen-binding region of 14kDa [single-domain] or 28 kDa [two-domain] – so they can better penetrate tumour tissues. Affimer molecules can also be easily formatted and modified for a wide range of applications, including linking to other biomolecules (eg other Affimers, antibodies, or antibody fragments) to create multi-specific therapeutics addressing more than one target. Their design optimises payload conjugation and delivery (Exhibit 6).

Exhibit 6: Affimer dimer schematic

Source: Avacta   Note: AlphaFold is a Nobel prize winning (2024) predictive algorithm for protein structure modelling

The Affimer scaffold is based on the naturally occurring human protease inhibitor Stefin A, which displays two nine amino acid loops that create a large and flexible antigen binding surface. These loops can be engineered to be exquisitely specific (enabling discrimination between even closely related targets); to incorporate a second antigen binding domain (eg to modulate PK/PD using Affimer XT, a serum albumin binding Affimer that extends half-life); and to introduce specific sites (cysteine residues) that allow chemical modifications to enable various drug molecules to be attached (and influence the DAR), including the creation of product candidates that incorporate both Affimer and pre|CISION technologies.

In addition to the properties of Affimer proteins offering an attractive and viable alternative to antibodies, importantly, their novelty means an unencumbered patent estate has been established. Thus, there is freedom to operate even when addressing targets covered by specific and robust antibody patents.

AffDCs: engineered to be better than ADCs

The properties of Affimer proteins that confer advantages over mAbs provide AffDCs with a similar potential edge over ADCs (antibody-drug conjugates). ADCs have become established anticancer therapeutics and have a unique mechanism of action that combines targeted therapy (via mAbs) with chemotherapy (via small molecules). This same mechanism can be used by AffDCs; however, as they are smaller in size and designed to increase further the specificity of payload delivery and potentially also treat patients with low tumour FAP expression though the bystander effect (ie killing of both antigen-positive and antigen-negative tumour cells), this translates into several benefits over ADCs (Exhibit 7).

ADCs are typically a three-component system (potent cytotoxic, stable linker, targeting mAb) which delivers a highly potent cytotoxic agent to tumour cells. The mAb discriminates between cancerous and healthy tissue by binding to specific tumour-associated cell surface markers (antigens or receptors), whereby the whole ADC is then internalised within the cancer cell and the active drug released.

Exhibit 7: Key points of differentiation between AffDC vs traditional ADC

Source: Avacta

The key limitations of ADCs stem from: (1) non-specific warhead release as any cell that internalises the ADC will be affected, leading to significant toxicity issues, and potential premature warhead release into the bloodstream; (2) side effects caused by immune responses partially induced by antibodies to the ADC; (3) tumour penetration issues due to the relatively large side of mAbs restricting which mAbs, or which therapeutic targets, can be used; and (4) the mAb only having a role in targeting rather than conferring a therapeutic benefit itself. We note that currently all approved ADCs rely on internalisation once they have bound to their respective cell surface receptors expressed on the tumour cell.

Many of these issues could potentially be addressed with Avacta’s pre|CISION and Affimer technologies. Avacta has designed and evaluated AffDCs which leverage the tumour-targeting ability of Affimer molecules with FAP-dependent payload activation of the pre|CISION technology. AffDCs deliver high potential warheads specifically to the TME using the antigen-binding domain of the Affimer protein, which is conjugated to a cytotoxic payload with a pre|CISION linker as a FAP-activated release mechanism. They can be rapidly created with a variety of different properties. AffDC design is typically focused on optimising the tumour target of the Affimer antigen-binding domain, the payload, and/or the linker which can also modulate the rate of FAP-mediated cleavage. Several options are available for these components; how they are combined influences the AffDC’s biophysical and functional characteristics and contributes to the IP estate. Different Affimer-linker-payload combinations can be patented, as well as the unique AffDC construct, its formulation, altered functionality (eg through pre|CISION chemistry), manufacturing methods, and use.

To date, Avacta has FAP-enabled ten different warheads, with the most advanced being docetaxel (AVA6000) and exatecan (AVA6103 and AVA7100). Potential options for AffDC warheads/payloads are diverse and could include cytotoxins, other DNA damaging agents such as a pyrrolobenzodiazepine (PBD), tubulin modulators (eg the auristatin MMAE), or immunomodulators (eg STING agonists, TLR 7/8 agonists etc previously mentioned in connection with prior TMAC, TME-activated drug conjugate, research). These payloads also form the basis of many ADCs currently under development by large pharma.

AVA6000: a trailblazer for pre|CISION

Avacta’s lead programme, AVA6000 (FAP-Dox), is a novel pre|CISION PDC consisting of doxorubicin conjugated directly to a FAP-cleavable peptide moiety. Doxorubicin is a well-characterised oncolytic, that despite first approval in the 1970s, remains in use to treat many solid tumours (including breast, lung, gastric, and ovarian), as well as several haematological cancers due to its proven efficacy. However, life-threatening cardiotoxicity is a major limitation to its use, with c 50% mortality once congestive heart failure develops. While pegylated and liposomal doxorubicin formulations have been developed to help minimise side effects, and/or cardioprotective agents are dosed in parallel, cardiotoxicities still occur. Cardiomyopathy is dependent on cumulative doxorubicin dose, effectively limiting treatment to only six cycles (typically 60-75mg/m² every three weeks until 450mg/m² is reached).

AVA6000 employs pre|CISION chemistry to create a doxorubicin PDC that is only activated in the TME, minimising systemic toxicities and maximising doxorubicin efficacy, with potential for optimised dosing. Selective cleavage of AVA6000 by FAP in the TME to release active doxorubicin means it is not circulating systemically, but instead is concentrated at the site(s) of the tumour(s), with corresponding sparing of cardiac tissue, allowing more treatment cycles to be carried out before the cumulative cardiotoxic dose is reached. This could have a positive impact on patients with cancers such as metastatic breast cancer (MBC) or advanced soft tissue sarcoma (ASTS) where doxorubicin is a mainstay of treatment, either as a monotherapy or a component of a cytotoxic regimen.

Clinical progress to date and AVA6000 Phase Ia data

AVA6000 recently completed enrolment in a Phase Ia dose escalation trial (Exhibit 8) designed to evaluate safety, tolerability and maximum tolerated dose (MTD) and/or recommended Phase II dose (RP2D) of AVA6000 monotherapy. AVA6000 has demonstrated a favourable safety and tolerability profile, with preliminary evidence of efficacy, including several durable RECIST responses in patients with high grade sarcoma and salivary gland cancers. No MTD has been identified when AVA6000 was dosed every three weeks (Q3W), the usual doxorubicin dosing schedule, or with more frequent fortnightly administration (Q2W).

Exhibit 8: AVA6000 Phase I trial design and patient population

Source: Avacta

New data from the Phase Ia trial of AVA6000 were presented at the ESMO (European Society of Medical Oncology) meeting in September 2024. These data, in 57 patients dosed over ten cohorts (including in both the Q3W and Q2W dosing arms), provided an update to the April 2024 AACR poster presentation that covered 42 patients over seven cohorts (Q3W dose cohorts only). Previously reported data from the trial were detailed in our June 2024 Update.

Ten dose cohorts (n=57) were evaluable for safety (primary outcome measure) at the 19 August 2024 data cut off, with 49 efficacy-evaluable patients (secondary outcome measure) and eight patients remaining on study. The trial enrolled patients with locally advanced (unresectable) and/or metastatic solid tumours, which were categorised as FAP^high (ie soft tissue sarcoma, STS [22.8%], and salivary gland cancer, SGC [17.5%]) or FAP^mid (pancreatic cancer [14.3%], colorectal cancer [19.3%], biliary tract cancer, and other malignancies) based on immunohistochemistry and FAPI-PET studies. FAP^low indications were excluded from the study. Patients had been heavily pretreated (median of two prior systemic regimens, range of 0-7), with 65% having prior cytotoxin exposure. Prior therapy with any anthracycline was limited to a total cumulative dose of less than 350mg/m² doxorubicin or equivalent.

A favourable safety profile with reduced toxicities

Data at ESMO 2024 indicated that AVA6000 continues to be well-tolerated, with a favourable safety profile in both the Q3W (Arm 1) and Q2W (Arm 2) dosing regimens. AVA6000 continues to show a low incidence of severe (Grade 3 and 4) treatment-related adverse events (AEs) and, as would be expected, these were more frequently observed in the high dosing cohorts. Additionally, with the usual caveats about cross-trial comparisons, there appears to be a striking reduction in occurrence of haematologic, cardiac and GI toxicities when compared to conventional doxorubicin (based on Phase III doxorubicin monotherapy data in STS patients), as illustrated in Exhibit 9.

Exhibit 9: Cross-trial comparison of AVA6000 safety profile vs doxorubicin

Source: Avacta, Twelves et al. 2024 ESMO Annual Meeting   Note: data cutoff 19 August 2024,  ¹ Tap, WD et al. 2020. JAMA 323:1266. ² Jones, RL et al. 2021. Clin Ca Res. ³ Doxorubicin package insert

The MTD has not been identified in either trial arm and no new dose-limiting toxicities (DLTs) have emerged. Overall, there were two DLTs at different doses (120mg/m² Q3W: Grade 2 cardiac failure; 200mg/m² Q3W: Grade 4 neutropenia/ thrombocytopenia), and in both cases, after additional patients were added to the cohort (typical in a 3+3 study design), the dose was deemed safe and escalated.

Of note, there was lower incidence of neutropenia (low levels of neutrophils, a white blood cell), which can be dose-limiting with standard doxorubicin, with this observed in 14% of patients receiving AVA6000 (vs 49% with doxorubicin). There were no cases of febrile neutropenia (development of a fever and signs of infection in a patient with neutropenia) vs 16.5% of patients receiving standard doxorubicin monotherapy in a similar patient population. Reductions were also seen in the incidence of other haematologic toxicities typically associated with doxorubicin, such as leukopenia (low levels of leukocytes, a white blood cell), anaemia (low red blood cell levels) and thrombocytopenia (low platelet levels). Similarly, there were comparative reductions in toxicities impacting quality of life (eg nausea, decreased appetite, pain, and other gastrointestinal toxicities).

Life-threatening cardiotoxicity is a major limitation with standard doxorubicin, which is associated with a temporary or permanent reduction in left ventricular function, limiting the cumulative dose that can be administered. Cardiomyopathy has been reported in 6-20% of patients treated above a cumulative doxorubicin dose of 500mg/m². In contrast, no MTD has been identified for AVA6000 despite dosing up to 385 mg/m² Q3W (c 4x standard dose doxorubicin). No Grade 3 or 4 severe cardiac AEs were reported, and the observed cardiac safety profile for AVA6000 has shown a low incidence of left ventricular ejection fraction (LVEF) changes (LVEF dysfunction of 12.3% vs 48.4% with standard doxorubicin). To date, there has been one patient with Grade 2 cardiac failure at 120mg/m² Q3W; this patient had a significant risk of cardiovascular disease, and an expert cardiovascular review concluded it was not anthracycline related.

PK and tumour biopsy provide insights into FAP biology

Fundamental changes in the PK of doxorubicin released from AVA6000 vs intravenous administration of conventional doxorubicin included extension of plasma half-life by c 40%, and more limited distribution into normal tissues (reducing systemic toxicities) with a 40-50% reduction in both the C_max (maximal concentration) and volume of distribution.

Exhibit 10: Concentration of dox in the tumour regardless of FAP level

Source: Twelves et al. 2024 ESMO Annual Meeting; Avacta

Importantly, tumour biopsies (n=9) taken 24-hours after first AVA6000 dose indicate that the concentration of released doxorubicin in the tumour does not appear to correlate with the level of FAP expression, suggesting that lower FAP activity is sufficient for doxorubicin release. This observation potentially extends the applicability of the pre|CISION platform to multiple other cancer indications, including FAP^mid and FAP^low tumours, using novel warheads (Exhibit 10).

Encouraging efficacy in indications with significant unmet need

For the efficacy analysis, patients were stratified by FAP status into FAP^high (n=23) and FAP^mid (n=26). In the FAP^high patients, three partial responses (PR, >30% reduction in sum of longest diameters, SLD) and four minor responses (MR, >10% and <30% reduction) were observed (Exhibit 11). These included in two patients with salivary gland cancers (SGC) with FAP-negative tumours but stromal cell FAP expression, one durable confirmed PR (46.2% SLD reduction) at 12-weeks with a duration of response (DoR) >18 weeks (patient now discontinued due to reaching lifetime maximum doxorubicin dosing) and an MR (14.6% SLD reduction at eight-weeks) in a patient dosed in the 250mg/m² Q2W cohort who remains on trial.

Exhibit 11: AVA6000: Best Response on study in patients with FAP^high indications

Source: Twelves et al. 2024 ESMO Annual Meeting; Avacta   Note: Data cut off August 19, 2024

The two other PRs in FAP^high cancer patients were both in high grade sarcomas:

• a patient with dedifferentiated liposarcoma (DDLPS) who had progressed on two prior lines of therapy and after an initial MR (-12.5% SLD in February 2024) improved to a PR with a 40.5% reduction in SLD (June 2024) although the follow up scan identified new lesions; and
• a patient with undifferentiated pleomorphic sarcoma (UPS) with one prior line of therapy in the metastatic setting (a 74% reduction in SLD was reported at AACR 2024) who remains on study as at the August 2024 data cut off with a DoR of >55 weeks.

Eight patients with FAP^high cancers remain on study. In FAP^mid cancers there were two MRs, although we note that patients in this group had cancers that generally would not be expected to respond to doxorubicin monotherapy.

Next steps for AVA6000

Enrolment is ongoing in three Phase Ib recommended dose for expansion (RDE) cohorts. The AVA6000 dose has been selected but not yet disclosed, while the three cohorts are three indications with FAP expression and known sensitivity to doxorubicin therapy: triple negative breast cancer (TNBC), high grade soft tissue sarcoma (STS) and salivary gland cancer (SGS, a subset of head and neck cancer).

Preliminary data from the RDE cohorts are expected to be presented in Q225. Depending on these data Avacta intends to seek a rapid route to market for AVA6000 so will select a single orphan indication to be evaluated in a potentially pivotal Phase II efficacy study planned to start in H225. This study could support initial regulatory approvals for AVA6000 in this indication, subject to a confirmatory Phase III trial. STS and SGC represent disease settings with very high unmet need, with response rates that vary from zero to <20%. With durable responses seen to date in a relatively small number of STS/SGC patients in the Phase Ia dose escalation, there is potential for additional AVA6000 efficacy evaluation in the RDE cohorts.

Exhibit 12: AVA6000 clinical development plan

Source: Avacta

Exhibit 13: AVA6000 clinical development timeline schematic

Source: Avacta   Notes: ¹Proposed indications include salivary gland cancer (SGC), high grade soft tissue sarcoma (HG-STS), and breast cancer (the TNBC subset). Phase I expansion will include 1L/2L mSGC, 1L/2L HG-STS and up to 3L PD-L1 negative 1L+ mTNBC patients; ²Proposed clinical trial lengths based on comparable trials testing ADCs in oncology (eg, Phase I/II: NCT03742102 / NCT01848834 / NCT02447003 and Phase III: NCT02574455 / NCT02819518, CT.gov references); ³Phase III trial initiation may occur before completion of Phase I/II

AVA6000’s clinical development plan (Exhibits 12 and 13) includes parallel development in TNBC, with the Phase Ib cohort potentially providing first evidence of efficacy for AVA6000 (TNBC was not an indication enrolled into the Phase Ia study). TNBC is a significant opportunity for AVA6000 given the unmet need, widespread use of doxorubicin chemotherapy (particularly in the PD-L1 negative cohort), and high level of FAP expression.

While TNBC represents c 15-20% of newly diagnosed breast cancer cases, it accounts for a disproportionate percentage of deaths (35%). Hormone or targeted therapies are ineffective treatment options as TNBC is characterised by a lack of expression of three key receptors on tumour cells (ER: estrogen receptor; PgR: progesterone receptor; HER2: human epidermal growth factor receptor), thus systemic chemotherapy is standard of care. Doxorubicin is a mainstay therapy for metastatic TNBC patients who are PD-L1 negative (Exhibit 14) and thus not eligible for PD-L1 checkpoint inhibitor therapy. As these patients often progress rapidly through various lines of therapy AVA6000, a less systemically toxic doxorubicin, could be a valuable addition to the armamentarium. Doxorubicin is also part of the part of the preferred (neo)adjuvant treatment regimen, so there could also be merit in evaluating AVA6000 in earlier lines of TNBC as a logical step for AVA6000 life cycle indications. Potential settings could include high-risk early-stage TNBC irrespective of PD-L1 status, a patient population shown to benefit from Keytruda (pembrolizumab) plus platinum chemotherapy, followed by Keytruda plus anthracycline chemotherapy (with doxorubicin as an option) as neoadjuvant therapy prior to surgery in Merck’s successful Keynote 522 trial.

Exhibit 14: Opportunity in metastatic triple negative breast cancer

Source: Avacta

Engineering the next generation of pre|CISION

Continued successful clinical progress with AVA6000 has helped validate Avacta’s pre|CISION platform, and its underlying mechanism of action for FAP-activated drug release, potentially enabling a broader pipeline of next-generation targeted cancer therapeutics. There are several established and effective compounds to which pre|CISION chemistry could be applied to enhance specificity, improve efficacy, and reduce toxicities.

Under previous management, Avacta disclosed encouraging preclinical evaluations of several internal compounds including pre|CISION-enabled chemotherapeutics (AVA6000), targeted therapies (eg AVA3996, an analogue of proteasome inhibitor Velcade), and TME-activated drug conjugates or TMACs (eg AVA004, a PD-L1 Affimer pre|CISION linked to I-DASH inhibitor talabostat). The focus now is on two novel programmes: second-generation PDC AVA6103 (FAP-EXd) and the third-generation AffDC programme AVA7100.

AVA6103: preclinical data supports MoA

Avacta’s first second-generation (Gen Two) programme is AVA6103 (FAP-EXd), a FAP-enabled PDC that consists of a pre|CISION peptide linked to the Topo I inhibitor exatecan. It is on track to enter IND-enabling studies in late 2024, with a US IND application targeted for Q425/Q126.

Gen Two pre|CISION PDCs employ new chemistries to create a sustained release mechanism for the active drug. This is achieved by altering the capping group (to extend the plasma half-life of the PDC to several hours) and the self-immolative linker (to modulate the rate of warhead cleavage from the pre|CISION peptide, by adjusting the release kinetics of the FAP enzyme). Sustained release of the payload in the TME has several benefits, including very low plasma exposure to the active drug (minimising systemic toxicities) and potential reduced dosing frequency (improving patient compliance) given the therapeutic effect can be exerted over a longer period.

Preclinical data for AVA6103 have shown that pre|CISION successfully targets exatecan delivery to the TME, increasing its therapeutic index 75-fold vs conventional exatecan dosed daily. By contrast, and as a benchmark, in the clinic and in preclinical models, AVA6000 exhibited a four- to six-fold increase in the therapeutic index of doxorubicin. Other studies in a patient-derived xenograft model of melanoma confirm high intra-tumoural concentrations of exatecan at four hour and 24-hour timepoints, with an up to 50-fold difference between warhead concentration in the tumour vs plasma. Together, these data support the mechanism of action of Gen Two pre|CISION PDCs.

Further validation of the pre|CISION platform is provided by other preclinical studies of AVA6103, such as a bystander (co-culture) assay which showed that AVA6103 optimises the bystander effect, with released exatecan able to enter FAP-negative tumour cells following cleavage only by FAP-positive fibroblasts. Finally, in vivo studies prove the successful targeting of exatecan delivery to the TME, where it accumulates and inhibits tumour growth, with complete responses, and increased survival, observed in a highly aggressive preclinical model of human cancer engineered to express FAP.

Exatecan: harnessing the potency of a powerful Topo I inhibitor

Exatecan, the payload in AVA6103, is a topoisomerase I (Topo I) inhibitor. Its mechanism of action centres on interfering with DNA replication and inducing DNA damage in cancer cells leading to cell death. Exatecan is the most potent Topo I inhibitor to have been studied clinically (Exhibit 15), demonstrating activity in multiple solid tumours. However, due to severe dose-limiting toxicities (neutropenia, thrombocytopenia, gastrointestinal toxicities) and insufficient Topo I inhibition due to a short half-life (around ten hours), clinical development as a monotherapy was discontinued by originator Daiichi Sankyo. Nevertheless, it has been adapted for use in other more targeted approaches, playing a central role in Daiichi Sankyo’s subsequent success as deruxtecan (DXd). DXd, an exatecan derivative, is the Topo I inhibitor payload and linker used within its blockbuster ADC Enhertu (partnered with AZN) and earlier-stage DXd development pipeline.

Exhibit 15: Exatecan, an ideal payload for the Gen Two pre|CISION platform

Source: Avacta, Kumazawa, E. et al. Cancer ChemotherPharmacol 42, 210–220 (1998)

The FAP-EXd PDC format of AVA6103 allows the targeted delivery of exatecan directly to tumours and its activation in the TME which, given exatecan’s potency and greater membrane permeability, should result in a therapeutic benefit with a lower side effect burden. Clinical data are required to confirm whether AVA6103 has the promised profile, with Avacta planning to embark on Phase I development in FAP-positive cancers sensitive to Topo I inhibition (Exhibit 16) in Q126.

Exhibit 16: AVA6103 Phase I basket trial in indications with FAP expression and Topo I sensitivity

Source: Avacta

If AVA6103 can establish an improved safety profile in Phase I, there are multiple potential cancer options where AVA6103 could have utility, and we expect that insights from the Tempus AI collaboration will help inform the choice of indication (and setting) to expedite and de-risk subsequent clinical development as well as offer the prospect of extensive life cycle management opportunities. A similar clinical development strategy to AVA6000 could mean selecting an orphan indication with high unmet need that would facilitate a rapid route to market, with parallel development in a larger patient population (Exhibit 17). Again, in common with AVA6000, this could include breast cancer.

Exhibit 17: AVA6103 clinical development planning

Source: Avacta

While Enhertu is approved for HER2-positive breast cancer (including HER2^low), a second ADC with a Topo I warhead is approved for 2L TNBC and 2L HR+/HER2- metastatic breast cancer: Gilead’s Trodelvy (sacituzumab govitecan) targeting TROP2 (tumour-associated calcium signal transducer 2). Use of these ADCs is limited to tumours expressing the TROP2 and HER2 surface antigens, a limitation not shared by the tumour agnostic AVA6103.

The broad reach of Topo I inhibitors, coupled with the prospect of longer-acting inhibition (conferred by pre|CISION chemistry) and more specific payload release reducing off-target toxicities (such as interstitial lung disease and pneumonitis which are boxed warnings for Enhertu), provides numerous potential opportunities for not only AVA6103, but possibly also AVA7100.

Finally, as PDCs and AffDCs are cheaper and quicker to manufacture than ADCs, particularly as the manufacturing of the mAb component is the most expensive and time-consuming part of the ADC process, there are likely to be health economics benefits should they reach the market. This could result in an expansion of the addressable market of the equivalent/most similar ADCs. We note that NICE recently rejected the reimbursement of Enhertu in the UK for advanced HER2-low breast cancer on cost effectiveness grounds.

AVA7100: the ability to address FAP^low cancers

Avacta’s first third-generation (Gen Three) programme is AVA7100, a preclinical pre|CISION enabled Affimer-drug conjugate (AffDC) that incorporates a novel FAP-Affimer dimer conjugated to a pre|CISION PDC warhead via standard ADC conjugation techniques (maleimide chemistry). The FAP-Affimer dimer consists of a non-internalising FAP-binding Affimer monomer (for targeting) engineered with an albumin-binding Affimer (for half-life extension). AffDCs have multiple possible payload options for the pre|CISION-peptide linker: for AVA7100, initial preclinical data with an exatecan payload has been presented. AVA7100 is expected to enter IND-enabling studies in H225, with a possible IND application in H226.

Gen Three AffDCs are highly specific and targeted biologic-drug conjugated molecules which leverage the properties of both Affimer and pre|CISION technologies. This improves the specificity of warhead delivery, sparing healthy tissues, by coupling enhanced tumour targeting through the antigen-binding capabilities of novel Affimers with FAP-dependent payload activation in the TME facilitated by the pre|CISION release mechanism. Importantly, a consequence of non-internalised Affimer protein binding and extracellular warhead release by FAP is that the bystander effect is enhanced by the AffDC’s mechanism of action. This has the potential to enable treatment of cancer types with lower or more heterogeneous levels of tumour FAP expression.

As previously discussed, Affimer proteins have several benefits over mAbs; these also translate into advantages of the Affimer molecule as a vehicle for delivery of pre|CISION-enabled molecules (Exhibit 18) so that AffDCs can similarly overcome some constraints of ADCs. Key attributes of Affimer proteins are their smaller size (improving tumour penetration) and a higher DAR (drug-to-Affimer or drug-to-antibody ratio) allowing for a higher drug payload to be delivered by each AffDC.

Exhibit 18: Advantages of Affimer proteins as pre|CISION delivery vehicle

Source: Avacta; Pinto et al.  EORTC-NCI-AACR Symposium 2024

Recently presented preclinical data from AVA7100 have demonstrated successful drug cleavage and warhead release by FAP resulting in tumour cell killing (both antigen-positive and antigen-negative) as a bystander effect when AffDCs are exposed to tumour cell lines or CAF cell co-cultures. Studies also showed that AffDC molecules could be generated with a wide range of binding affinities, including potency up to single digit picomolar, pM. These findings further support the premise that AffDCs can effectively target payload delivery to tumours with low FAP expression, which opens up a more extensive opportunity across a more comprehensive array of hard-to-treat cancer indications.

AffDCs could compete in the lucrative ADC arena

As discussed above, exatecan is an ideal first payload for AVA6103 (and an option for AVA7100) given how pre|CISION chemistry can harness its potency and diminish its off-target side effect profile. Clinical success for these programmes will not only validate the Gen Two and Gen Three pre|CISION constructs and underlying technology, but potentially also deliver competitive therapeutic options for hard-to-treat cancers.

Again Enhertu (trastuzumab deruxtecan), the first Topo I inhibitor ADC, provides a useful proxy to assess the opportunity. It is a tumour-agnostic HER-2 targeting ADC that is now approved and marketed as a therapy for previously treated unresectable or metastatic HER2-positive solid tumours in the US and EU, having received its first approval for HER2-positive breast cancer in 2019. Global sales in 2023 stood at >$2.5bn, making it the highest selling ADC, with consensus revenue expectations of >$11bn by 2030. Enhertu is the subject of a March 2019 collaboration between Daiichi Sankyo and AstraZeneca, which included a $1.35bn upfront payment by AstraZeneca for global ex-Japan co-development and co-commercialisation rights, plus up to a further $5.55bn in contingent regulatory and sales milestones.

We highlight that Daiichi Sankyo has also entered into additional global ex-Japan co-development co-commercialisation deals for other development stage DXd (deruxtecan) ADC programmes with large pharma. A second collaboration agreement was signed with AstraZeneca in July 2020; this time for DS-1062 (datopotamab deruxtecan, Dato-DXd), a preclinical TROP2 (trophoblast cell-surface antigen 2) directed ADC. Deals terms included a $1bn staged upfront payment, plus up to $5bn in regulatory and sales milestones. A comprehensive Phase III programme is currently in planning for Dato-DXd. More recently, in October 2023, an up to $22bn deal was struck with Merck & Co for three potentially first-in-class DXd ADC programmes (patritumab deruxtecan, HER3-DXd, ifinatamab deruxtecan, I-DXd, and raludotatug deruxtecan, R-DXd). Deal terms included a $4bn upfront from Merck, $1.5bn in near-term payments over 24 months, and up to $16.6bn on achievement of sales milestones.

More generally, ADCs are a hot space in biotech, with a flurry of M&A activity having taken place over the past 24 months. Daiichi Sankyo’s collaborations highlighted high bio-dollar deal values; subsequent acquisitions, such as Pfizer’s $43bn acquisition of ADC pioneer Seagen and AbbVie’s $10.1bn acquisition of ImmunoGen, further reinforce this theme. To date, the FDA has approved 15 ADCs (we note that Seagen technology is used in four of these), and over 260 are currently under evaluation in clinical trials.

Deal drivers for large pharma include the perennial search for replacement revenues for key products approaching patent expiry, but also the pursuit of a competitive edge. In the ADC arena, competition appears to be mounting to achieve best-in-class status for established targets (via access to enabling technologies) or to secure first-in-class assets.

Sensitivities

In common with many other innovative healthcare companies the three main sensitivities relate to clinical development and regulatory aspects, commercial execution, and the financial resources required to accomplish these.

Avacta’s strategy is now exclusively focused on developing novel therapeutics, with its newly unveiled pipeline built through the application of the pre|CISION platform, in conjunction with the Affimer platform for AffDCs, to develop a range of innovative constructs. Addressing such highly novel targets is commercially more attractive but also, clearly, carries a greater risk. While the preclinical studies have generated impressive data, these newly revealed programmes have yet to be tested in humans. While the likelihood of encountering material unexpected problems is relatively small, the impact on the commercial prospects of Avacta’s strategy could be significant. Countering this to some extent are the positive data from AVA6000’s Phase Ia studies that have largely validated the pre|CISION platform’s mode of action.

A key element of the strategy envisages in-house development of smaller and orphan indications, with the larger, and more expensive indications addressed through collaborations, partnerships, and/or out-licensing. Management has a history of successfully striking such deals and partnerships in previous roles but their ability to source, negotiate, and close appropriate deals with Avacta remains unproven. The importance of such deals is not only as a source of non-dilutive funding; they also provide useful external validation of the attractiveness of the proprietary technologies and the commercial value of the programmes.

Financing is a perennial element to any innovative research-based company and Avacta is no exception. End-June 2024 cash of £32.5m provides funding through key AVA6000 value inflection points, although additional resources will be needed to progress the therapeutics pipeline. The timing and means of securing sufficient funding is an important sensitivity, with others relating to:

• Planned divestment of the Diagnostics division: this will focus the business onto the development of the therapeutic pipeline and application of the platforms, as well as realising value and providing non-dilutive funding for R&D investment;
• Progressing the therapeutics pipeline: this includes further clinical studies of lead pre|CISION asset AVA6000, such a Phase II development in an orphan indication, as well as advancing the key PDC (AVA6103) and AffDC (AVA7100) programmes into and through clinical development;
• Securing appropriate business development/licensing deals: these include potential deals or collaborations for the pre|CISION and Affimer platforms, and for the further development and/or commercialisation of pipeline assets, particularly for larger indications that require higher investment, but also represent more lucrative opportunities.

Avacta’s sensitivities are common to all such high technology-based biotechnology and development stage companies and are well documented and appreciated by investors. Essentially the higher risks are accepted and are reflected in the expectations of higher potential returns.

Valuation

We have revisited our Avacta valuation given recent disclosures and pipeline expansion. Our valuation uses a sum-of-the-parts model, comprising risk-adjusted NPVs (net present value) for the disclosed Therapeutics pipeline assets, and an indicative placeholder valuation for the pre|CISION platform. Each rNPV includes an estimate of the potential costs for each programme. The success probabilities for each are adjusted for the inherent clinical, regulatory, commercial, and execution risks. Our key assumptions are summarised in Exhibit 19. The rNPVs are summed and then netted against unallocated operating costs and net cash (excluding the convertible bond, CB, which we assume will be settled in shares).

Our AVA6000 valuation now reflects latest company guidance around the clinical development plan, and we separately value newly disclosed assets AVA6103 and AVA7100. Our valuation is focused on the core Avacta business; hence we have removed the prior valuation contributions from the Diagnostics division (as divestment options are being explored) and the Affimer platform (Affimer investment is now centred on AffDCs, in particular AVA7100). We continue to attribute no material value to the AffyXell JV in our model, reflecting the current lack of visibility and early developmental stage. These non-core areas could represent potential upside, especially as we also do not factor in potential proceeds from any Diagnostics sale. Our new current valuation is £439m ($548m), equivalent to 119p per share (or 111p/share fully diluted for future shares to settle the CB).

Exhibit 19: Avacta sum of the parts valuation

Source: Trinity Delta   Note: assumptions include a 12.5% discount factor, £/$ FX rate of 1.25

Our AVA6000 NPV is a blended valuation comprising an orphan opportunity (salivary gland cancer or soft tissue sarcoma) which Avacta could potentially commercialise alone, and a larger commercial opportunity (TNBC), where Avacta will likely need a commercial partner. In total we forecast (unchanged) peak AVA6000 sales of $1.5bn, with c $250m for the orphan indication, and the remainder for the larger partnering opportunity. Potential launch timelines have been aligned with guidance around the AVA6000 clinical development plan. Given initial efficacy data have been reported in STS and SGC, we assign a probability of 60% to the orphan indication. For the larger partnering opportunity, we assign a lower 20% given the lack of efficacy data at present in any such indication, plus partnering execution risk, on which we have limited visibility.

We now have separate valuations for each of the disclosed pipeline assets, AVA6103 and AVA7100, although given the limited details at this stage, these are largely placeholder assumptions for now. For AVA6103 we know that the warhead exatecan has shown clinical activity in several solid tumour indications (breast, gastric, lung, and pancreatic cancers), all of which could have blockbuster potential, and that FAP-targeting is relevant in a broader array of cancers than Enhertu (which targets HER-2), hence our $2.5bn peak sales. We assume third-generation AVA7100 could have even larger potential, given the additional potential benefits of an AffDC format, including its applicability to FAP^low tumours. As AVA6103 is the more advanced asset, we assign a 15% probability. We acknowledge that this is high for a preclinical programme (preclinical assets would typically have a probability <5%), however given AVA6000 has provided proof-of-concept for the pre|CISION platform, notably on the potential to improve safety, and that exatecan has previously demonstrated clinical activity in a number of solid tumours, we believe this is justified. For AVA7100, as this is earlier stage than AVA6103 and a development candidate has not yet been selected, we assign a lower 7.5% probability.

Our valuation also includes an indicative valuation for the pre|CISION platform. In the absence of specific details, this assumes multiple products are at various stages of preclinical development, with varying degrees of commercial potential. Avacta has stated that they have pre|CISION-enabled ten payloads to date; while we do not expect these all to enter the pipeline, there are clearly future opportunities for pipeline expansion. We highlight that the Tempus collaboration could also offer the prospect of extensive life cycle management opportunities for pipeline programmes.

Avacta has delivered on multiple pipeline milestones so far in 2024, with near-term upcoming news flow, particularly for AVA6000 and AVA6103 and progress with divestment of Diagnostics, potentially unlocking further upside potential.

Exhibit 20: Avacta data outputs and milestones

Source: Avacta    Notes: Blue = data readout; Green = milestone; RDE = Recommended Dose for Expansion; FPI = First Patient In

Financials

Avacta’s H124 revenues were £11.3m (H123: £11.9m; FY23: £23.2m), with £11.2m derived from Diagnostics (H123: £9.9m; FY23: £21.2m) reflecting a full six months from Coris (vs one month in H123 and seven months in FY23). H124 Therapeutics revenues were £0.1m (H123: £2.0m; FY23: £2.1m), down on H123 as the prior period included the achievement of an AffyXell milestone. Gross profit was £5.0m (H123: £6.7m; FY23: £11.2m), with CoGS in H124 relating entirely to Diagnostics, for a Diagnostics gross margin of 44% (H123: 48%, FY23: 43%).

H124 R&D expenses of £6.7m (H123: £6.0m; FY23: £14.5m), with £6.5m within Therapeutics (H123: £5.3m; FY23: £13.1m), reflected ongoing AVA6000 clinical development costs and preclinical spend on the emerging pipeline. SG&A spend was £9.4m (H123: £8.7m; FY23: £16.9m), with around 50% in Diagnostics, reflecting a full six months of Coris costs, and the remainder across Therapeutics and central group functions. Adjusted EBITDA loss was £11.1m (H123: £7.9m; FY23: £20.1m), with Diagnostics posting a small maiden £0.1m profit. When adding back various non-cash items (depreciation and amortisation, share based compensation, and the share of losses from the AffyXell JV) and non-recurring costs of £1.5m (Wetherby closure and CEO replacement), this resulted in an operating loss of £17.3m (H123: £11.9m; FY23: £28.4m). Net loss was £12.5m (H123: £11.5m; FY23: £25.0m).

End-June 2024 cash and equivalents were £32.5m (end-June 2023: £26.0m; end-December 2023: £16.6m), which includes the £31.1m gross (£29.4m net) fundraise completed in March 2024. At end-June 2024 the £55m senior, unsecured Convertible Bond (CB) issued in October 2022 was held on the balance sheet with a value of £23.7m (H123: £44.6m; FY23: £34.4m), including a debt component of £15.3m (H123: £15.7m; FY23: £16.1m) and a derivative fair value of £8.4m (H123: £28.9m; FY23: £18.3m); the changes in these elements resulted in an H124 non-cash gain on revaluation in the P&L of £10.0m and a non-cash interest expense of £6.3m. Post period end, there have been two quarterly amortisations, in July and October; the July payment, comprising principal of £2.6m and interest of £0.6m, was settled in cash, while October was settled in shares. Following these amortisations, the CB principal remaining is £30.6m.

For the purposes of our model, we continue to assume the CB and coupon are fully paid by October 2027 ie five years from issuance, and we assume this will be in shares priced at 88.72p (non-cash movements). Given the CB was issued to fund a Diagnostics M&A-led growth strategy (resulting in the acquisition of Launch Diagnostics in October 2022 and Coris in June 2023), the divestment of this division may create a potential opportunity for earlier settlement of the CB.

Following interim results, we have updated our financial forecasts. Our revenue forecasts are largely unchanged, with £23.8m in FY24e and £25.8m in FY25e (from £23.9m and £26.0m, respectively), based on H124 trends. These only include revenues from Diagnostics and do not factor in any potential Therapeutics milestones. Avacta is planning to divest the Diagnostics division, however, until this is completed, our financial forecasts continue to include a full contribution from this business (albeit we do not include any Diagnostics contribution in our valuation). Our forecasts, in particular Revenues and SG&A, will be subject to review once the divestment is complete.

Our R&D forecasts have been reduced in FY24e to £14.8m (from £17.8m) to reflect H124 trends, with FY25e unchanged at £18.7m; these forecasts continue to assume some spend on the broader pre|CISION pipeline beyond AVA6000. Our SG&A forecasts are essentially unchanged. Together, these changes to forecasts plus the exceptional costs incurred in H124 largely net off in FY24, with an Operating Loss of £33.7m in FY24e (from £33.8m). FY25e Operating Loss now stands at £34.5m in FY25e (from £33.5m). Our updated Net Loss forecasts are £33.6m in FY24e (from £42.5m) and £41.8m in FY25e (from £40.5m). An overview of our updated forecasts is shown in Exhibit 21.

Our updated forecasts continue to suggest a cash shortfall by end-2025, with the current cash runway sufficient to reach key value inflection points, including preliminary data from the Phase Ib expansion cohorts expected Q225. Given the cash shortfall, for the purposes of our model we include £20m of cash inflows in FY25 (as illustrative short-term debt); we highlight that Avacta has multiple potential sources of additional funding which range from proceeds from the divestment of the Diagnostics division, possible pipeline or platform partnerships, and/or the prospect of a NASDAQ IPO. Fresh funds will enable AVA6000 to advance into Phase II as well as progressing the newly disclosed AVA6103 and AVA7100 programmes through pre-IND studies.

Exhibit 21: Summary of financials

Source: Company, Trinity Delta  Note: FY24e and FY25e forecasts include a full contribution from the Diagnostics division and will be subject to change once the terms of the divestment are known; FY25e includes £20m of cash inflows as illustrative short-term debt

Contact details

Scale Space, White City
Imperial College Campus
58 Wood Lane
London W12 7RZ
United Kingdom

www.avacta.com

Top institutional shareholdings

Source: Avacta  Note: shareholdings correct as at September 2, 2024