After a relative fallow period during the pandemic, 2023 has seen a resurgence of M&A across the drug-development industry. In fact in the past two months alone, there’s been a flurry of proposed deals - Pfizer’s $43bn purchase of Seagen, Merck's $10.8m bid for Prometheus Biosciences at a 75% premium, and GSK’s $2bn acquisition of Bellus Health.

Other large biotechs that also need to replenish their pipelines include Bristol Myers Squibb, Royalty Pharma, AbbVie, Biogen, Gilead Sciences and Viatris. The common thread is that big pharma typically targets smaller firms progressing world beating new therapeutics through late stage clinical trials.

To me, Avacta (AVCT) fits the bill, once its lead drug candidate AVA6000 enters Phase 2 trials as planned sometime over the next 1-2 years and delivers first sales in 2026.

The good news according to todays’ FY22 results is that everything remains on track. Sales hit £9.7m, with £5.5m from therapeutics and £4.2m from diagnostics, leading to a -£15.1m EBITDA. And with £41.8m of cash in the bank as at 31st December 22, it has ample capital for the foreseeable future.

Elsewhere October's £24.9m acquisition of Launch Diagnostics Limited - which generated revenues of £4.0m in 2022 - has bedded down well, with potential smaller bolt-ons possible in order to ultimately create a substantial in-vitro diagnostics (IVD) business.

CEO Alastair Smith commented: “The outlook for AVA6000 and the pre|CISION platform as a whole looks very promising, based on the safety, pharmacokinetic and tumour biopsy data obtained to date. The next significant value driver for AVA6000 will be the initial efficacy data from the Phase 1b dose expansion phase in patients with soft tissue sarcoma.”

Chairman Dr Eliot Forster added: “I firmly believe that our pre|CISION and Affimer technology platforms have the real potential to deliver an extensive pipeline of oncology drugs that will make a meaningful difference to cancer patients’ lives. The future prospects for Avacta are very positive indeed.”

In respect of valuation, broker Trinity Delta has a risk adjusted NPV estimate of 221p a share.