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Avacta Group Plc
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== Risks == The principal risks and uncertainties that could have a significant impact on the Group are set out below: === Reliance on third parties supporting clinical and pre-clinical programmes - Therapeutics === Avacta relies heavily upon other parties (including clinical research organisations) for many important stages of its therapeutic development programmes, including execution of some pre-clinical studies and later-stage development for its compounds and drug candidates, and management of its clinical trials, including medical monitoring and data management. Underperformance by any of these other parties could adversely impact the Group’s ability to operate effectively. With the Group now progressing Phase I trials on its first clinical programme (AVA6000) there continues to be significant recruitment within the clinical development team, led by Neil Bell, and they are working to ensure the performance of the third parties that are contracted to ensure that the quality and timeliness of these services provided are acceptable. The regulatory approval processes of the MHRA and FDA and other comparable regulatory authorities can be lengthy and time consuming. The Group consults, where appropriate, with regulatory advisers and regulatory-approved bodies to ensure that all regulatory requirements are met, as demonstrated by the submission and timely approval of the CTA and IND submissions for the AVA6000 programme. The Group uses experienced and reputable clinical research organisations and requires its clinical and manufacturing partners to comply with Good Clinical Practice and Good Manufacturing Practice. === Manufacturing and supply risk - Diagnostics === The Group develops, with manufacturing partners, lateral flow tests which require formal clinical validation and CE marking. The Group has identified third-party manufacturing partners and established an appropriate supply chain for the manufacture of approved lateral flow tests. The ability to produce tests within the UK to a cost price which would make tests competitive with Chinese-manufactured tests has been a significant challenge and the Group continues to explore alternative production routes for the manufacture of future tests. The Group has established contractual relationships with several key manufacturers and suppliers of kit components in order to ensure availability of supply and not place overreliance on any one supplier/manufacturer. === Commercial risk - Diagnostics === The price point of lateral flow tests has been under significant pressure given the surplus production capacity from cheaper Chinese production facilities now that the sales of COVID-19 lateral flow tests have subsided. Establishing commercial sales channels within the UK, Europe and other countries for the future diagnostic tests in development will involve substantial business development and management/legal time to ensure the partnerships established are as commercially rewarding as possible and sustainable without creating any significant commercial risk in terms of working capital. The regulatory changes in relation to the IVDR/CE marking process in 2022 have led to delays in obtaining approvals from Notified Bodies (such as BSI) which will delay the launch of future products not yet for sale within Europe. The Diagnostics Division has embarked on an M&A-led growth strategy to build additional routes to market through established distributors (with the acquisition of Launch Diagnostics) and will continue to look at opportunities across Europe to expand the diagnostic product portfolio and additional distribution channels for centralised and de-centralised testing. === M&A risk - Diagnostics === The Group’s Diagnostics Division has recently embarked on an M&A-led growth strategy to build an integrated and differentiated IVD business with global reach. To achieve the strategy the Group needs to successfully identify the right M&A targets with the correct attributes in terms of products, people and geographies. The Group also needs to ensure that businesses are acquired on favourable terms from an acquiror’s perspective. As part of the M&A process, adequate levels of due diligence need to be carried out to substantiate the acquisition value and identify any risks that exist, whether they be financial, legal, regulatory or similar. The Group has built a strong internal team who run the M&A process and work alongside experienced professional advisors advisers in areas such as legal, regulatory and financial/ taxation. The established process has numerous go/no-go points that are reviewed and discussed with the Board and strategic advisers. === Research and development === The Group’s research and development activities continue to focus around the Affimer® technology within the Diagnostics Division and the Affimer® and pre|CISIONTM technologies in the Therapeutics Division. There is a risk, consistent with similar biotechnology companies developing new and innovative technology platforms, that the scientific results required for specific internal development programmes, product development projects, customer-related evaluations or third-party collaborations. This risk is in specific applications of the Affimer® or pre|CISIONTM technologies rather than in the individual technology platform as a whole. The development teams continue to work on improving the core Affimer® and pre|CISIONTM technology platforms and expanding the potential areas where the technology has significant benefits over existing antibody technologies with oversight from the Senior Management Teams, the Board and Scientific Advisory Board. With the Group’s first asset (AVA6000) progressing through clinical trials there is a risk that the trials might not be successful and that the Group is unable to develop marketable products. There is a risk that the clinical trials could lead to unanticipated results, which require further development leading to time delays. The Group has built an experienced and reputable team of clinical advisers who are monitoring the outputs of the clinical trials to ensure appropriate decisions based on data outcomes are taken at the right time. === Funding === The development of the Group’s Affimer® and pre|CISIONTM technologies in the Therapeutics Division is resource and cash intensive. The new Diagnostics Division M&A strategy also requires sufficient funding to enable attractive acquisitions to be acquired. The Group successfully raised £61.3 million (gross) during the year to continue the Group’s plans; however, there will be future funding requirements which will need to fund expanded clinical development programmes. As at 31 December 2022, the Group had cash and short-term deposits of £41.78 million, which leaves it in a good position to deliver on its short to medium term objectives. As with all fundraising activities in the biotech sector, there are external market and economic factors, such as the Ukraine conflict and UK recession, which may impact the timing and amount of funding available through capital markets. === Intellectual property === The success of the Group’s Affimer® and pre|CISION™ technology platforms depends on its ability to obtain and maintain patent protection for its proprietary technology. Failure to protect the Affimer® and pre|CISION™ technology platforms, or to obtain patent protection with a scope that is sufficiently wide, could significantly impact the Group’s ability to commercialise the technology. Should the patents be challenged, there could be a considerable cost in defending the patent rights, with an uncertain outcome. The Board regularly reviews the patent portfolio and its protection. Specialist patent attorneys are engaged to apply for and defend intellectual property rights in appropriate territories. === Key staff === The Group has in place experienced and motivated Senior Leadership Teams across the Diagnostics and Therapeutics Divisions, together with a significant number of highly skilled senior scientists and technical specialists. Loss of key staff could lead to a delay in the Group’s plans and operations. During the year, the Group has successfully continued to recruit senior specialist roles within the Therapeutics Division covering scientific, regulatory and clinical development areas whilst relocating its operations from Cambridge to London. The Diagnostics Division, in the light of its recently announced M&A strategy, has reviewed the levels of staff required to progress its product development of diagnostic devices, with suitable experienced staff within quality assurance and regulatory teams. The Group aims to provide remuneration packages, including share incentive plans, and working conditions that will attract and retain staff of the required level, informally benchmarking the level of benefits provided to its staff against comparator companies. === Cybersecurity === Unexpected events such as failures of IT systems or the increasing threat of targeted cyber attacks could disrupt the Group’s operations from any of its sites or lead to a loss of data. The Group continues to place reliance on third-party cloudhosted applications, which provide cost-effective services with significant redundancies and disaster prevention and recovery strategies. The Group has in place disaster recovery plans which are periodically tested and third-party specialists are used to assess any potential vulnerabilities in the Group’s systems. The Group ensures that all software and systems are regularly updated to latest software versions and firmware updates. Its cyber security plans are reviewed on a regular basis and recently upgraded security access levels have been established. It also provides training to staff on dealing with potential cyber attacks and security risks. === Loss of facilities === Should the Group’s facilities become inaccessible through damage caused by fire, flooding or theft, the ability to carry on development programmes and meet customer deadlines may be affected depending on the severity of the incident. The Group has purpose-built facilities in both Wetherby and London with specialist equipment and working environments that potentially may not be easily repaired or replaced. The Group has established business continuity plans in place for each location, which are regularly reviewed and tested. Resilience exists between sites so that certain operations could be quickly transferred from one facility to another where appropriate. Health and Safety safety procedures and policies exist for each site with routine checks on facilities, equipment and infrastructure. The Group also maintains adequate insurance to cover any business damage or interruption.
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