Avacta Group Plc (AVCT) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Avacta Group Plc Final Results Investor presentation. [Operator Instructions]. Given the attendance on today's call, the company will not be in a position to answer every question it received during the meeting itself. Before we begin, we would like to submit the following poll, and if you'd give that your kind attention, I'm sure the company will be most grateful. And I'd now like to hand over CEO, Alastair Smith.

Morning, thank you. Thanks very much, and morning, everyone. Thank you for attending the preliminary results presentation for 2022. Let me just start by running through some of the key highlights. Obviously, we'll touch on these as we go through the presentation. But it's -- I think it's absolutely true to say a very significant year of progress right across the group. And in particular, very pleased to see the progress with AVA6000 Phase I study, which we'll talk through in a little bit more detail. But in summary, we're seeing a very positive safety profile through the first 4 patient cohorts in the dose escalation study. And of course, we have also confirmed the release of doxorubicin at therapeutically significant levels in the tumor biopsies. So we are seeing a very much improved safety profile, but also release of doxorubicin in the tumor tissue as we would have hoped. So that really very strongly supports the principle of FAP activation, the precision targeting of drugs into the tumor tissue. And that's led us to accelerate the development of AVA3996, which is the second of the precision drug candidates. It's a tumor-targeted proteasome inhibitor, which recently, at the AACR meeting, we presented a poster with the preclinical data, and I went through a video to explain that data. I'll touch on a little bit of that in the presentation today, but it's a very exciting opportunity to think about proteasome inhibitors in solid tumors, which has never been -- never been the case before. So that's a very exciting opportunity. And then across our partnerships with AffyXell and LG Chem, good progress. I'll touch on that. And of course, you're aware that we moved the therapeutics division during the year as well from Cambridge into London. On the Diagnostics division, we are engaged in an M&A-led growth strategy for that division. We raised capital in October, as I'm sure you're aware, and executed the first of those acquisitions of Launch Diagnostics in October. I'll talk through, as time allows, the strategy for that M&A-led growth. And certainly, later in the year, we'll have, perhaps at the AGM, a lot more opportunity to go into that in a great deal of detail. And finally, the last point on this slide, strengthened the Board further with the addition of another expert medical oncologists, Chris Coughlin. Okay. I'll hand over to Tony to go through the financial slides and then go through the business update.

Thanks, Alastair. Good morning, everybody, and thank you for joining us today. I'd like to just walk you through the preliminary results for this year. Without a doubt, they have probably been the most complex accounts that we've ever prepared in Avacta's history, given the number of transactions that have gone on this year, starting with the sale of the Animal Health division at the start of the year, followed by the acquisition of Launch Diagnostics in October and the associated fundraising of the convertible bond. So there is a fair amount of complex accounting within this. So what we've tried to do is the way that we presented results this year is to draw a line on the face of the income statement called adjusted EBITDA, which will give everyone a real feel for more the cash burn within the business that's closely associated that because there's a lot of noncash items on the profit and loss account. So please when you look at these numbers, the adjusted EBITDA loss of GBP 15 million is far more consistent with the cash flow position as opposed to the loss in the year of GBP 39 million as some of the adjustments that we'll walk through. So let me just stepping down through the P&L. The revenue this year was just shy of GBP 10 million, which is probably the highest revenue number we've ever reported as a group. That was driven by a couple of milestone payments on the therapeutic side, which we'll touch on shortly, and the impact of the Launch business on the Diagnostics segment. That delivered us a gross profit of just over GBP 7 million. And we then step through and we've got research and manufacturing costs from the therapeutics business on its development programs and also the diagnostics business in terms of the development of the products it's working on. The SG&A costs have stepped up during the year, and that's primarily because we're obviously now rolling in the Launch SG&A costs as well as the business grows and expands. So our adjusted EBITDA loss position was GBP 15 million in the year compared to just under GBP 22 million the previous year. If we step further down the P&L, there's amortization and depreciation charges, again, which should appreciate our noncash items, which is set below there. And then we have share-based payments. We also take a share of AffyXell, which is our JV its losses. So there's just over GBP 1 million charge there from recognizing our share of the JV. We own 19% of that at the end of the year. So that gives us an operating loss of GBP 32 million compared to GBP 29 million the previous year. There are then some costs that go through the income statement to do with the convertible bonds. We take through the commission costs, the interest costs and part of the bond is effectively valued as a derivative. So we take through the charge on that, and that is really driven by the fluctuations in the share price. So the share price had increased 20% from the time we took the bond out to the end of the year, which drives effectively a further charge through the P&L. But again, that is a noncash-based item. Further down the P&L, we've got a taxation of a couple of million pounds, which, again, we claim through R&D tax credits, and so that will come back as cash into the business in the future, which leaves us with a retained loss of GBP 39 million compared to GBP 26 million the previous year. If I move on to the next slide, which breaks down the operating segments. So you clearly see we've got 2 clear segments now. The Animal Health business has been treated as discontinued in both years so isn't in these numbers. And the way I present in this is obviously the diagnostics is a very different structured business, and we are looking to grow that into a profitable EBITDA based business. So this set out of the presentation will help you see how we look to move that over the coming years into a profitable business as we then continue through the M&A process. So the revenues in the Diagnostics business of GBP 4 million come primarily from the Launch business in the period that we had that this year. And the therapeutics has got just over GBP 5 million. Again, that's from milestones from LG Chem and AffyXell. As we step down, again, this breaks down the operating loss through to the each business from the different segments, and we have essential costs. So all the costs to do with running the group, whether that be essential costs in terms of finance, HR, IT, the directors or the adviser costs and brokers and registrars are all not allocated across the 2 segments. So there's a separate column there, but we will progress these and continue to report on a consistent basis so there's clear visibility between the 2 trading divisions of the group as we work through these numbers. If I move on to the cash flow. Now we started 2022 with GBP 26 million of cash. Operating cash outflows from the trading of the business and movements in working capital used GBP 16 million, which is fairly consistent with that operating EBITDA loss of GBP 15 million that was on the face of the P&L. So that gives you the consistency of how those numbers tie through. The investing activities were the acquisition of Launch business for GBP 24 million, proceeds from the sale of the Animal Health business, which was just under GBP 1 million on the first tranche, and then some CapEx costs that sit alongside that. In terms of the Launch acquisition, GBP 24 million was an upfront payment. There is deferred consideration of up to GBP 13 million to do with the future sale of COVID products over -- which exceed GBP 2 million in any of the next 3 years. Our assessment at the end of this year is that there is unlikely to be more than GBP 2 million of COVID sales in any one of those years, so we do not envisage paying any more of the GBP 13 million deferred consideration, and that's clearly stated in the accounts as we sit there. The financing activities of the just shy of GBP 57 million reflects the bond that was received, which was $55 million at a 5% discount. So that was just over GBP 52 million of cash we received, placing proceeds and the open offer, which totaled another GBP 9 million gross from that less any of the transaction costs associated with that. That left us with just shy of GBP 42 million cash at the end of the year. Just to give you a bit more of an update on reinsurance, the cash position at the end of March this year, March '23, is circa GBP 39 million because we've had the benefit of the financial year '21 R&D tax credits coming through, which was GBP 2.8 million, which came through in January this year. So GBP 39 million, good, strong cash runway to see us through '23, well into '24. And as you'll appreciate, the level of spend on the therapeutics programs can vary quite significantly depending on how quickly those programs are accelerated. So well positioned from a cash perspective to take us well through into the back half of next year. If I move on to the balance sheet. Just to explain some of the categories on here because, again, there's been a lot of different accounting as we look through this. The noncurrent assets of GBP 37 million reflects plant and equipment. The leases that we have to account for, for the buildings that we have around the group. So that's the current [ Avacta ] buildings plus those that we acquired with Launch, plus the goodwill in terms of the acquisition from Launch and also our investment in the AffyXell JV. Current assets have increased to just shy of [ GBP 40 million ]. But again, we've taken on the current assets, the trade debtors and things of the Launch business. So we would expect that to grow. Cash of GBP 42 million, the assets held for sale last year was the Animal Health business as we had to reflect that at the end of last year. Current liabilities of GBP 14 million and then noncurrent of GBP 60 million. And that GBP 60 million consists of our leases to do with properties, but also the convertible bond. So that's reflected in a couple of different ways because you have to value a derivative component of it, which has a value of GBP 39 million and there is the debt value of GBP 19 million. Those combined together give you your GBP 55 million overall bond value because at the end of the year, none of the bonds had been repaid. Since the end of the year, we have had 2 quarterly amortizations, which have been settled in shares, and there was an early conversion in February. So the value of the overall bond at today is just under GBP 47 million. And we've settled the conversion on those previous ones through the issue, further issue of shares and that will continue as we progress our way through this year over the term of that bond. So just to summarize, GBP 42 million cash at the end of the year, GBP 39 million at the end of March, well funded to drive us through into -- well into 2024. I'll now hand back to Alastair to give the business update.

That's great. Thanks, Tony. Thanks very much. Okay. So I'm going to start with the Therapeutics division. And I assume that some people on the call, perhaps are not familiar with Avacta in detail, so a little bit of background. So the Therapeutics division is a clinical stage oncology drug company. Our vision is to deliver genuinely transforming treatments that improve the outcomes for cancer patients and improve their lives. Our approach to doing that is to harness our 2 proprietary platforms, so the pre|CISION platform and the Affimer platform, which obviously we'll go through more in the presentation. We focused very much in the last couple of years on the pre|CISION platform because of its potential to drive near-term value, but I'll certainly touch on the Affimer platform, and we'll talk much more about that later in the year as well at the AGM. So our approach is to leverage those 2 platforms to develop best-in-class and first-in-class cancer therapies, very much a focus on growing our clinical pipeline alongside focused, but selective out-licensing opportunities. It's important that we maintain our own in-house clinical pipeline. So I know there's a question later on about licensing strategy, and we certainly would not be looking to out-license our lead clinical assets to a third party. And then combine our in-house drug development capabilities with partnerships that allow us to develop, off our balance sheet, the 2 platforms in different therapeutic areas. So the pipeline really reflects that strategy and that vision. I won't read through all of this, and we'll go through it in subsequent slides. But the 2 lead programs are the pre|CISION programs, AVA6000 and AVA3996, which I spent some time on. Then the Affimer programs, the multi-specific Affimer programs and the TMAC program as well as a number of undisclosed pre|CISION and Affimer targets that are very much in the early research phase. And at the bottom of this, that pipeline are our partner programs, which I'll give you an update on towards the back end of the presentation. Okay. Again, assuming there are some people on the call who are not familiar with the pre|CISION platform, I'll just take a minute to introduce that technology. So the pre|CISION technology is a proprietary chemical modification. And we're all familiar with the systemic toxicities of chemotherapies, which really affect the tolerability for patients and thereby the efficacy. So it's the systemic toxicities rather than the efficacies of these toxins that are the issue. A solution to that is to target the release or the activation of the chemotherapy to the tumor tissue. And pre|CISION allows us to do that because it allows the chemotherapy to be selectively activated in the tumor tissue by an enzyme that is upregulated in most solid tumors and at a low level in healthy tissue. So it gives us a tumor-specific activation of the pre|CISION chemotherapy. And that, therefore, is designed to improve the safety and tolerability because you reduce the systemic exposure and, thereby, improve the efficacy. And I can illustrate that with AVA6000 in particular. So AVA6000 is a modified, a precision modified form of doxorubicin. So you can see in the left-hand panel on this slide, the doxorubicin molecule is circled and then the pre|CISION chemistry, which is a simple die peptide, that precision chemistry, which is added to doxorubicin to create AVA6000. And the key point here is that AVA6000, that modification prevents the molecule from crossing the cell membrane, and therefore, getting into cells to kill them. So AVA6000, to put it crudely, is inert when administered to the patients as it goes around in the circulation. As it goes around in the circulation, it will go through the tumor microenvironment where it will encounter the enzyme that I mentioned, FAP, fibroblast activation protein alpha, FAP alpha. And when it encounters -- when AVA6000 encounters that enzyme, which is primarily in stromal tissue on fibroblasts as well as on some cancer cells, but predominantly in the tumor tissue, as I said, and not in healthy tissue, so when AVA6000 encounters FAP, it removes the pre|CISION chemistry that we've added. So you can see in the panel on the right, the removal by the enzyme of the chemistry that we've added releasing doxorubicin, which can, at that point, in the tumor, enter stromal and other cells in the tumor tissue causing the cell killing that we're looking for. Okay. So we are in the later stages of a dose escalation study. So this is a safety study, and we'll talk a little bit more about that when we talk about the dose expansion phase as well. I know there's a question or 2 on this as well. So the Phase Ia dose escalation study is designed to deliver safety and tolerability information. The patients that are recruited into this study are not recruited specifically to give a potential of an efficacy signal. So they will be heavily pretreated late-stage cancer patients. And the dose escalation study is exactly as the name suggests, beginning at a relatively low dosing of AVA6000 equivalent to approximately the normal dose of doxorubicin in Cohort 1 and then escalating through increasing doses in order to identify the maximum tolerated dose, the dose range for AVA6000. When we designed the original clinical trial, we designed it for 4 cohorts. We have not, in the first 4 cohorts, reached the maximum tolerated dose, which is obviously better than we could have hoped and extremely promising. So we've now progressed onto the fifth cohort. We've opened a couple of U.S. sites as well that will contribute into the Phase Ia study as well as the Phase Ib, which I'll touch on in a second. But to summarize, in the interest of time, the Phase Ia dose escalation data, from a safety perspective, AVA6000 has been well tolerated across those first 4 dose cohorts. So we've seen a really significant reduction in the frequency and the severity of the usual toxicities, including the serious hematological toxicities, neutropenia, thrombocytopenia, anemia and also the cardiotoxicity, which we've not observed. So it is the cardiotoxicity that is responsible for causing the lifetime maximum cumulative dose that a patient can have of doxorubicin. So from a safety and tolerability perspective, very promising safety profile, seeing a very marked reduction in the sorts of toxicities and in particular, not seeing the cardiotox that is a key issue for doxorubicin. There is, of course, the potential that we're never releasing 6000 is never releasing doxorubicin, and that clearly would not be the objective. But I'm very pleased that in January, we could confirm from tumor biopsies, which were not mandatory in the dose escalation phase. But from tumor biopsies, analysis of those biopsies taken from 6 patients, we can confirm that we are seeing doxorubicin released in the tumor tissue at a much higher level than we're seeing systemically at the same time point. So to summarize, really promising safety profile. And the biopsy data do indicate that we're getting release of doxorubicin, reflecting the preclinical data that we saw, and obviously, supporting the concept of the precision targeting of FAP-rich tumor tissue. So just to move on to the Phase Ib study, which will start later this year as we complete the Phase Ia. So the Phase Ib is designed and the patient recruitment will be such that we can see an efficacy signal. So the group of patients, the rationale for selecting soft tissue sarcoma as the indication to go into is that doxorubicin is the only therapy that's indicated first line for advanced soft tissue sarcoma. Doxorubicin itself has a fairly marginal efficacy of 18% overall response rate with 6 months progression-free survival. The design of the study takes into account the fact that the PK data, so the pharmacokinetics that we're seeing in the Phase Ia. So the pharmacokinetics is telling us what the systemic exposure of the patients are to doxorubicin released by AVA6000. So that's telling us that we can extend the number of cycles at least 2 to 3x because of the targeting of the -- of the doxorubicin into the tumor tissue and that reduction in systemic exposure. So all of that goes into the design of the Phase Ib. And as you'll see, there are 3 arms to that. So it's intended to be an open-label randomized design in metastatic soft tissue sarcoma. There are 2 different dose levels of AVA6000 planned, as well as a doxorubicin arm to give us that comparative data. When we talked recently on a video we produced about the biopsy data, the clinical data to date, and I made the point that there really isn't any published data on the levels of doxorubicin that you would see in a tumor, that data isn't out there, at least it's never been published. So that third arm will allow us to get comparative data of our own. And that will then inform the design of the Phase II study, which could be pivotal. Okay. So let me move on to preclinical programs and first of all, to talk about AVA3996, which I think is a really interesting molecule with huge potential. So -- let me first of all talk about proteasome inhibitors. And again, we recently and that video spoke about the data, the preclinical data for AVA3996 that was presented at AACR. So if you want a more fulsome run through the preclinical data, which is quite extensive on that poster, then there's a video on our website, you can download as well as the poster. But a brief bit of background then on 3996. It is a precision modified proteasome inhibitor. The proteasome inhibitor, you can see in the right-hand panel circled in blue, is a very close analog of bortezomib, which is Takeda's Velcade. It's not identical, but it's very, very close. And the pre|CISION chemistry that modifies that proteasome inhibitor, which we call 2727D. The precision is circled in red to give you the AVA3996 molecule as a whole. So the proteasome is the part of a cell that gets rid of protein waste. And so I apologize for the for simplification of this, but the garbage disposal system, if you like, of the cell. Now if you prevent the cell from getting rid of that protein waste then that can be fatal to the cell, is fatal to the cell. So a proteasome inhibitor that stops the garbage disposal system working, is going to lead to cell death in most types of cells. So thinking about the proteasome market, it's forecast to grow to over GBP 2 billion by 2026. But it's really important to note that, that is -- that is a market that's actually very restricted by the severe dose-limiting toxicity. So these types of drugs, proteasome inhibitors are only really approved in B-cell malignancies, so principally multiple myeloma. So this market is very much restricted to hematological tumors because you simply cannot get enough into a patient to get enough into a solid tumor without very, very severe or fatal side effects. So just to make a comment about drug positioning and AVA3996 positioning, we would not be positioning AVA3996 head-to-head with Velcade in multiple myeloma. That is not the intention. You'll see on the next slide, as we talk about the PDX efficacy data from the AACR poster, that there is good indication that we can target the 2727D, the proteasome inhibitor to solid tumor tissue, which opens up the possibility of treating solid tumors with a proteasome inhibitor for the first time. So I don't think about going head-to-head in the multiple myeloma market. That's not the intention. It's to create an entirely new opportunity in solid tumor treatment. So that data, and this is the only data that I pulled in from the poster we recently presented in Orlando, but there's quite a lot on this, which really sort of tells the story. So let me, first of all, deal with the top panel. So these are mouse models of efficacy. They're called PDX models, so patient derived xenograft models where you take cancer tissue or cancer cells from a cancer patient and implant them in mice. If you look at the left-hand graph, so the top panel is a melanoma model. So this is melanoma PDX model in mice. The left-hand graph shows the growth of the tumor in the mouse over time, with the black line being what we call vehicle, which is effectively just a placebo, so that the tumor clearly grows quite significantly over the period. And then 2 other groups of animals treated with AVA3996 and bortezomib, which is Velcade. And what you see there is that 3996 is as effective as bortezomib in effectively flatlining the growth of that tumor in that melanoma PDX model. What's interesting to see is in the middle panel where the body weight of the animals is monitored as an indication generally of toxicity of the treatment. And you can see with the blue line, which is the bortezomib, that the animals lost significant body weight and in fact, had to be given a break from the treatment with bortezomib about 1 mg per kg in order to recover, whereas those toxicities were not seen with the vehicle or with 3996. So very much an indication of that targeting to FAP-rich tumor tissue in the PDX model. So we repeated the model on the left-hand panel, and you see the results on the right-hand panel with a reduced level of bortezomib, which is more tolerable for the animals. So there, you see a comparison of AVA3996 again with botezamib at a lower level, also dosing the animals directly with 2727D. So not being released from 3996, but directly delivered, and also compared with trametinib, which is the standard of care for unresectable melanoma. And you'll see that all of those 3996, 2727D botezamib and trametinib were all equally effective in stopping the tumor from growing in that melanoma PDX model. So as I said, a proteasome inhibitor is a very broad cell killing instrument and opens up the possibility of at least thinking about tumor-agnostic treatment. So we've run more models than this now and we continue to run other models. But there are 2 here in the bottom panel, a sarcoma PDX model and a colorectal cancer PDX model. And again, you see that 3996 and bortezomib are certainly comparable in the reduction in tumor growth rates in both of those PDX models. So as I say, potential to be at least thinking about a tumor-agnostic therapy. So the key takeaways at least from this set of data is that 3996 is as effective in releasing a proteasome inhibitor in FAP-rich tumor tissue as effective as bortezomib, Velcade, and trametinib, the standard of care for melanoma in that melanoma model. And that we didn't see the same level of toxicities in that first set of experiments with 3996 compared to when -- when the animals were treated with 1 mg per kg of bortezomib. So very encouraging. We're now obviously pushing through the IND-enabling preclinical studies, toxicity -- tox models and so on with a view to IND filing as soon as possible, probably early next year. Okay. We don't have a huge amount of time today, and I want to talk in some depth about the Diagnostics division. and I'll just go through a couple of slides on the Affimer platform, but also just put a marker down that at the AGM this year, we'll spend a lot more time talking about the Affimer platform and have an opportunity for a lot more Q&A across the board. So just very briefly, for those who aren't familiar with the Affimer platform, the second of our proprietary technologies is an antibody mimetic. So an antibody alternative, if you like, which is a small protein that's engineered to have a binding surface so you can develop inhibitors or agonists as you would do with an antibody, but there's a number of technical benefits to having a small, stable binding protein that you can select against different targets in an in vitro selection assay rather than generating antibodies through any other method. So those technical benefits are driving our strategy to differentiate the Affimer biotherapies. So first of all, they allow us to address some difficult targets that have historically been very challenging for antibodies to address such as GPCRs. It allows us to also drive the selectivity during the phase display in the way we generate the Affirmers to get exquisite selectivity for the target antigen. So that's another key advantage to differentiate this platform from antibodies and other mimetics and to be able to build multispecific, but importantly, developable, and by that, I mean, when you build dimers and trimers, they are stable and you can manufacture them with reasonable yields, so developable multispecifics. And that's reflected in the summary of our internal research programs on the next slide, which, as I say, we will, at the AGM, take more time to go through these and update on some progress. So there are 3 main programs: one, bispecific combination of PD-L1 antagonist with cytokine; one, a PD-L1 bispecific with LAG3 and the other, a tumor microenvironment activated drug conjugate. So actually combining the pre|CISION chemistry in the linker with an Affirmer or of course, potentially an antibody, but an Affimer, in our case, the pre|CISION linker with a very potent toxin that can be released in the tumor microenvironment. Okay. In the interest of time, let me touch on the partnerships and then into the diagnostics section because I do want to get to some of the questions that have been asked. So from a partnership perspective, AffyXell is a joint venture that we have in South Korea with Daewoong Pharmaceutical. And as Tony mentioned, we have a 19% shareholding in that joint venture now. It's a really interesting basis for a cell and gene therapy company. So what we have demonstrated with Daewoong and AffyXell is that we can modify stem cells to be able to make and secrete Affimer immunotherapies such that the stem cell in situ in the body can make its own immunotherapies to support the stem cell activity. So there are 2 key programs there. One is based on mesenchymal stem cells secreting an anti-CD40 ligand Affimer for use in something called guest versus host disease. And the second is MSC secreting an agonist that hasn't been disclosed yet, but this data will be presented later in the year for use in MS and Type 1 diabetes. So AffyXell itself has made good progress over the last 12 months in terms of partnerships and fundraising. And as I mentioned, 19% shareholding, which the way we structured this arrangement is that we can claw back equity. We don't book cash into this joint venture. So when we're diluted through funding rounds, we can claw back equity as we pull Affimer IP into the business, for example, the anti-CD40 ligand Affimer IP. LG Chem is, by coincidence, another South Korean pharmaceutical company, obviously, a subsidiary of LG. The key program here, which quite likely will be the first Affimer program into the clinic into human is a PD-L1 antagonist. What's really interesting from our perspective is, not only is it an Affimer PD-L1 inhibitor, an immunotherapy, but also it's a bispecific using an Affimer for half-life extension. So this really will prove the platform in terms of the multi-specificity that I've talked about, the selectivity. And of course, the key data in human is the safety and tolerability to the Affimer platform, which is significant value add for the platform and the company as a whole. We expect LG to take that into the clinic before we do. We don't have a precise timing on that. I think it's unlikely to be this calendar year, but that probably suggests next calendar year. So it is a PD-L1 antagonist with human serum albumin Affimer binder to extend the half-life towards antibody-like half live despite the fact that this is a much, much smaller molecule. Okay. Let me move on then to the Diagnostics division. So the vision that we have now having embarked on an M&A-led growth strategy for the Diagnostics division is to build a fully integrated and through the use of the Affimer platform in terms of immunodiagnostics, a differentiated IVD business, a European IVD business with significant global reach. We'll talk about the strategy in a moment on the next slide. But the mission is straightforward -- is to support professional health care, health care professionals, but also broaden access, broaden diagnostic access to diagnostics for everyone to improve treatment monitoring and improve health and fitness. So let me -- again, we certainly will, at the AGM, take more time to go through the strategy. We don't have a huge amount of time today if we're going to get through questions. But let me sort of set the scene about how we look at the IVD sector? How we think about that, and then also the diagnostics value chain? And how that's driving our strategy in terms of the M&A-led growth of the Diagnostics division? So as I said, the key objectives are to support health care professionals and improve access to diagnostics. The way we look at the diagnostics market to be able to address both of those objectives is through centralized testing, which is in hospitals effectively. So centralized pathology, laboratory testing and also decentralized testing, which does occur in hospitals, in triage, for example, but also in GP clinics, in pharmacies and via obviously selling tests directly to consumers, but also selling sampling kits to get consumers, patients to sample themselves and then send the test off where the test can be run within a professional environment. And I think that's probably a key theme that's central to our thinking is the execution of the test to be within that professional environment. So as I say, centralized testing, pathology laboratories in hospitals, but also some rapid near-patient point-of-care testing, which is predominantly lateral flow tests, although there are -- there are certainly new technologies to allow molecular testing, PCR-type testing to be carried out at point of care. And then point-of-care tests and lateral flow tests and self sampling to improve that access in the more decentralized setting in GP clinics, pharmacies and at home. And we'll talk about Launch on the next couple of slides, but Launch very much fits. That picture is a piece of the jigsaw, if you like, that fits that picture in the centralized testing, whether that's through rapid tests or automated equipment and reagents and consumables in the pathology laboratory. So that's the way we are looking at the market and certainly how Launch fits as a first piece of that jigsaw. It is worth just talking, again, in order to understand what's driving our M&A strategy, talking about the diagnostics value chain. From the left-hand side of the value chain, which is the IP-rich product development innovation, the generation of value at that end of the value chain to the right-hand side of the value chain where the values through the -- obviously, the sales revenue, the customer relationships, the -- that market intelligence that then drives future product development. So manufacturing in the middle is not something that we are focused on. We are interested in what we would think of as the higher-value parts of the value chain, at the right-hand side, the commercial customer relationships, on the left-hand side, the innovation and product development. Okay. So Launch, as I said, really fits in that strategy in terms of the centralized pathology laboratory and near-patient testing in the hospital setting. So Launch was the largest independent U.K. IVD distributor. Obviously, now part of the Avacta Group. As Tony mentioned, we acquired the business in October last year for GBP 24 million, has a significant business in the U.K. and also growing in France as well as some activity in some other countries, I'll talk about on the next slide. Been around for over 30 years, a very well-established business with a very, very good reputation in the industry. And as I said, the rationale is to buy a profitable distribution capability into that centralized part of the diagnostic market that I've just described. So just to talk through a little bit more detail. Founded in 1990, provides a broad range of immunodiagnostic and molecular test products, along with the reagents and consumables that have that sort of recurring annuity of revenue to go into those products as well as the technical support and maintenance, primarily in the U.K. and France, about 75%, 25% split U.K. and France, but with some business in Belgium, Luxembourg and the Republic of Ireland as well. Customers are primarily public and private hospitals, obviously, NHS in the U.K. as well as private hospitals and a mix in France. A very, very experienced management team that have been with the business a long time. Very, very good reputation in the industry, as I've said. So a great business model to think about expanding into other geographies, which I'll mention in a moment. And sales delivered largely through tenders contracts, long-term contracts that have a high level of repeat business, so quite sticky revenues that we get a very good visibility on in terms of planning. So if we think about Launch in terms of the numbers, what's really important to emphasize is that like a number of diagnostic businesses, there was significant COVID windfall. So we've been very careful, first of all, when we acquired the business, not to value that because we don't see it continuing, and it's not continuing, but to also describe this very transparently. The core business in '21 was a GBP 14.2 million non-COVID business. In '22, recovered to pretty much pre-pandemic levels at GBP 16.5 million, and Stifel forecast for '23 is GBP 18 million non-COVID, nothing to do with COVID revenue. So that's from the sale of a broad range of products and reagents and consumables in the U.K. and France, as I described. Most of the activity and people are in the U.K., but there is logistics, a new logistics facility in Houlle in northern France, which, obviously, services France and potentially other countries as well. So just a final slide on Launch then. I mean it's clearly important that we grow this business as we expect to do in '23 and onwards. There's a number of opportunities for growth, short, medium and long term. Obviously, growing the sales and marketing activity can drive near-term sales, particularly into the base of a much larger base of PCR equipment that's now in place because of pandemic. In the medium term, adding new products, which may be developed by us, maybe small acquisitions of product portfolios that we can put down this channel. But certainly, we added a new automated, autoimmune analogy system into the business last year from HOB. So expanding the portfolio of products is clearly a way of growing this business. But the most significant opportunity that we believe for growing this business is to expand it geographically. And there are no sales in Germany at the moment, which is the largest European diagnostics market. And that is a key part of our strategy to grow this business. And as we make progress with that project, I'll update the market at the right moment. So that brings us to the summary slide, and we can get into some of the questions. So really just to sort of highlight those comments I made at the start. It has been a very, very good Phase Ia study for AVA6000, very pleased with the results we're seeing in terms of the safety profile, but also the very clear significant release of doxorubicin in the tumor tissue. That's as good as we could have hoped for. That is a -- meant that we've really accelerated AVA3996, which is the tumor-targeted proteasome inhibitor. And again, just to underline, the market currently is really focused around hematological B-cell malignancies. But that's not the disease positioning that we are thinking about. If we can target into solid tumors as those PDX models suggest we can, that creates a very, very interesting opportunity for the first time for proteasome inhibitors in solid tumors. And that did get a lot of attention at the AACR meeting around the AVA3996 preclinical poster a couple of weeks ago. On the Diagnostics side, the funding is there to give us the flexibility, having now acquired Launch Diagnostics for some careful and focused M&A potentially buying product portfolio. But obviously, we are very mindful of the achievement -- of the need to achieve the key therapeutic milestones as well. I'll leave it there, Mark, and if you want to go through some of the questions, that would be...

That's great. Alastair, Tony, thank you very much indeed for updating investors. And just before we turn to questions, I'd just like to remind investors that recording of today's presentation, along with a copy of the slides and the [ processed ] Q&A can be accessed via your investment company dashboard. And Alastair, Tony, we did, as you know, receive a considerable amount of questions submitted today and a number of questions throughout today's meeting. So thank you to everybody for your engagement. And what we'll try to do, I guess, is try to put these into themes and hopefully, by addressing these themes it will address some of the questions that maybe we may not be able to read out specifically, but hopefully that -- these questions will cover a number of those themes. So let's kick off, if I may, with the first one, which is what is Avacta's commercial strategy for its current therapeutic assets, including AVA6000 and AVA3996 and beyond?

Yes. So I mean, I touched on that in the presentation. I think the key point is that we -- we're committed to the clinical development of both of those assets internally in-house to maximize value. So it would be a strategic mistake to license our lead assets in any significant way. We would certainly be opportunistic to partnering assets in a sort of well-defined area for high-value licensing opportunities, but it's critical that we -- we keep those lead clinical programs and preclinical programs in-house. So there is, of course, the potential to monetize the pre|CISION platform outside of those 2 assets, more broadly with third parties that have warheads in an ADC settings or toxins that they want to develop to target into the tumor in the way that we're doing with 6000. So there's an opportunity to monetize that platform outside of 6000 and 3996 as well.

That's great. And I know a number of these questions you may have gone through the presentation, but anything else that you can add would be great. The second question reads as follows, can the company confirm the completion of AVA6000 Phase Ia is still on track for H1 '23?

Yes. Yes. So broadly on track. I mean, obviously, it depends on the size of the number of cohorts that we go through. You're all aware that it's a 3+3 dose escalation study. So that means, if you see a DLT in a cohort, then you expand with another 3 patients. And if you don't see a DLT, you continue to the next cohort. So clearly, if you run 6 patients through a cohort, it takes longer than 3. So it's difficult to predict exactly what we're going to see. But yes, we expect to finish around the midyear and then progress on to the Phase Ib. So I think if what's behind the question is, is the Phase Ia going to drag on to the back end of the year? The answer is no. And we'll update the market as appropriate as we go into each cohort and reach the MTD.

Why is the company continuing to dose escalate in its Phase Ia trial to find a maximum tolerated dose when enough doxorubicin is getting into the tumor in cohort 4?

Yes. No, it's a good question. And I mean the first point is that the MTD, the maximum tolerated dose is critical to define the dose range for all future studies, whether that's us or by our partner, as we just discussed. So we need to be able to define the maximum dose range so that people can, in future, plan their clinical developments of the assets. So I think you also need to remember that we're getting -- as we do this, and we reach an MTD, we're getting a very detailed picture of safety, tolerability, PK, pharmacodynamics. And all of that is the first time that the pre|CISION platform itself has been into human. And therefore, all of the data that we're gathering is tremendously valuable in terms of the value of the platform and partnering and so on. So it's really important that we fully explore the dose range, even though it's taking longer than we originally thought, but that's a really positive thing because we're way above where we thought we would get to in terms of dosing.

Next question has a couple of parts to it so let's go through those. We've heard a few times the patients in cohort 1 to 4 were not expected to respond to AVA6000 given their types of tumors. However, one of these patients, C1 was ovarian and one C3 was soft tissue sarcoma. Why were these patients not anticipated to respond to AVA6000 given their tumor types? How will AVA6000 eventually be administered? And is it not as simple as the more doxorubicin in the tumor microenvironment, the better?

Okay. So there's quite a bit in there. Nothing simple in drug development will be the first comment, but let me sort of answer the questions. So that point about efficacy, I think I touched on that in the presentation. So what you have to note is that the patients that are recruited into a Phase Ia safety study are heavily pretreated late-stage or end-stage patients. And their cancers will be well advanced and will probably have developed escape mechanisms to evade therapy. So you cannot recruit patients into a Phase I safety study that have an alternative. If they haven't yet been treated, then they will go into the standard of care for whatever cancer they have. So you can't take those patients into a Phase Ia safety study. So they're all heavily pretreated. They're all late-stage cancer patients. They probably have escape mechanisms, for example, tumor cells and other cells develop pumps that take the drugs out of the cell, so Pgp pumps that take the drugs that you put in out of the cell. And another mechanism that's very common is what's called senescence, where the cells simply stop dividing to try and avoid things like topoisomerase inhibitors, which doxorubicin is. So you would not expect even in an ovarian or a soft issue sarcoma patient that's at this stage to necessarily respond to a topoisomerase inhibitor like doxorubicin. That's because of the patients that are chosen. In the Phase Ib, a different group of patients will be selected for exactly that reason, so that we can have a good chance of seeing efficacy. So hopefully, they will be first-line treatment, so anthracycline-naive patients in the Phase Ib. That's certainly what we're aiming for. And then I think the next part of the question was how is it going to eventually be administered? And is it as simple as just getting more doxorubicin into the tumor? The answer to that is almost certainly no. Of course, that's what the Phase Ib is designed to evaluate. But we don't think that just getting more drug into the tumor in a short space of time is going to improve the outcomes of patients. So for example, in terms of progression-free survival, we think that a lower dosing, let's call it, a normal level of dosing, but over many more cycles is going to be more effective. So -- and the Phase Ib is determined to -- designed to determine that, obviously.

Will the U.S. sites be recruiting to help with the final cohorts of AVA6000 Phase Ia trial and then play a major role in the Phase Ib?

A quick answer to that, yes. And so the U.K. sites, the U.S. sites all recruiting into Phase Ia, and they will all play along with other sites a key role in Phase Ib.

That's great. You've always talked about the value of AVA6000's data will bring to the pre|CISION platform. Could [ in fact ] elaborate on what successful AVA6000 trial would provide to the platform?

Yes. So thinking about the Phase I as a whole, so the Ia and Ib together. The first thing is proof of concept, which is the evidence that we're seeing that the preclinical data translates into humans. So in other words, we're targeting the release of a chemotherapy into FAP-rich tissue, and thereby reducing the systemic exposure. So we are already seeing the emergence of those data, which is great. The second thing for the platform that is success is getting really detailed PK -- sorry, pharmacokinetic and pharmacodynamic data that really lets us understand exactly that process I've just described and how that happens over time because that leads to the design of future clinical studies. Getting a clinically clear, better safety profile for a drug like doxorubicin, those are all indications of success. So for the platform as a whole, and then for 6000 in particular, of course, it will come when we get into the Phase Ib to see efficacy at least as good as with a much improved safety profile and longer treatment and possibly better than doxorubicin.

That's great. Thank you very much, Alastair. A few more if we may just tackle these. What is the process for FDA fast track approval? Does the successful Phase Ib data readout in soft tissue sarcoma mean that there's potential for the drug to be given fast track approval from the FDA, or other means of accelerated approval and ultimately generate revenue for the drug sooner than anticipated?

Yes. So the -- I mean, obviously, we are committed to move AVA6000 through clinical development through the best possible route and get it generating revenue as soon as possible. But the answer to that question is no, the Phase Ib data is not sufficient. So it will be the Phase Ib and the Phase II data that would be taken and reviewed for fast track approval. But we should bear in mind on the question -- the question sets it out as well. There are other routes through the regulatory process, which could be more suitable for AVA6000 given that it's releasing doxorubicin, which is an established drug and we're exploring all of those options. So we will pick the best regulatory route to get the drug to market as soon as possible.

I am mindful that this is day 1 of your results roadshow. I'm very grateful that we got a slot so early on that road show. So I'm mindful not to overtake our time. But maybe if we finish up with the last question. Takeda's Velcade patent expired in 2022. Does Avacta see this as a significant market opportunity for AVA3996? And as a result, is there an additional focus on partnering with pharma such as Takeda to expedite market access?

Yes. So again, I hope -- hopefully, I was clear in the presentation that certainly we're not intending to compete with Velcade for use in blood cancers. The idea of 3996 is to position it as an FAP-activated treatment for solid tumors so a different market. But the answer to the question about partnering is clearly under the right circumstances with a high-value partnership that doesn't -- isn't detrimental to our own value generation in the clinic that would certainly be of interest. We can't possibly develop all the pre|CISION chemotherapies that we can -- we can think of. So we have to partner them in order to get them to market in a sensible time.

Well, Alastair, Tony, thank you very much indeed. And once again, thank you to everybody for your engagement, both ahead of today's event and your engagement throughout. I know investor feedback will be important to you both, and I'll shortly redirect those on the call to give you their thoughts and expectations. But Alastair, before doing so, I wondered if I may, just ask you for a few closing comments and then ask investors to give you their feedback.

Yes. Thanks, Mark. Well, I mean, first of all, thank you for everyone sparing the time to go through the presentation with us. Really, just to reiterate the point, we haven't managed to get on to the questions about diagnostic strategy and so on. I'm sort of very aware of that, and we will take the first opportunity, if not at the AGM, as I say, we're going to spend more time at the AGM to give shareholders an opportunity to go through these things. So apologies for not getting through all the questions that were submitted. There was a very large number, but we will do, we're not ignoring them. And thank you, everyone.

That's great. Alastair, Tony, thank you once again for updating investors. Can I please ask those investors on the call not to close this session as we're now automatically redirect you for the opportunity to provide your feedback in order the company can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Avacta Group Plc, we'd like to thank you for attending today's presentation. Good afternoon to you all.