Avacta shares climb after regulatory approval - could this continue?
Avacta Group has gone from strength to strength in the past year, using its expertise to develop highly accurate Covid-19 tests. Following regulatory approval for a new antigen test, will the Avacta share price rise again?
- The Avacta share price has risen 1400% since January 2020
- Shares rose to 220.5p when markets opened on 17 June
- Avacta was one of the first to produce rapid Covid-19 tests for the mass market
- UK regulatory authorities have just approved a new Avacta antigen test
- Ready to trade the Avacta share price? Open an account today
Why have Avacta shares risen by 1400%?
Outside a limited circle of health tech investors, few people had heard of Avacta Group this time 18 months ago. The Yorkshire-based life sciences company originally focused on cancer treatments and diagnostics but decided to pivot towards developing rapid Covid-19 tests not long after the pandemic hit.
Thanks to the high levels of accuracy from Avacta tests, which initially hovered at around 96%, the Avacta share price surged continuously throughout 2020 and beyond, landing at a peak of 275p on 10 May 2021.
Although the share price has dipped since then, it was bolstered once more on 7 June following the news that UK regulatory authorities had approved Avacta's rapid lateral flow antigen tests for general use. This means that the tests will likely be used widely throughout the UK by both public and private bodies.
Only four days later, on 11 June, Avacta experienced another win when those same antigen tests, which reportedly have a 100% accuracy rate, were granted approval by the European Medicines Agency. The share price quickly jumped once it was clear that Avacta could begin selling its rapid tests for use throughout the EU bloc, which is home to 445 million people.
What are the risks ahead for the Avacta share price?
Although it would seem that Avacta is in a solid position and that its continued revenues are assured, there are significant dangers ahead for the company. Most alarming is the fact that Avacta is yet to make a profit from its Covid tests, having earned £3.64 million in revenue in 2020, while reporting losses of more than £18 million.
Meanwhile, Avacta's £650 million market cap is more than 140 times higher than the expected revenues for the whole of 2021, which are expected to reach £4.5 million. Although investors clearly remain optimistic about the future of the company, these underlying metrics could spell trouble for the future share price.
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