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After AstraZeneca, Oxford Nanopore Might Be The Next UK COVID Winner

Published 23/04/2021, 04:59 pm

Vaccines manufactured by three groups have so far been approved in the UK. They include:

  • AstraZeneca (LON:AZN) (NASDAQ:AZN)/ Oxford University;
  • BioNTech (NASDAQ:BNTX) / Pfizer (NYSE:PFE); and
  • Moderna (NASDAQ:MRNA)

For many people around the globe, they have all become household names. The vaccine developed by Johnson & Johnson (NYSE:JNJ) is still awaiting approval in the UK.

In early 2020, before the pandemic started dominating almost all aspects of life, oil major Royal Dutch Shell (LON:RDSa) (NYSE:RDSa) had the largest market capitalization on the FTSE 100, the UK's leading stock index.

But last year, the leadership position quickly moved to AstraZeneca—clearly a sign of the times. The pharma group now has second place, behind the consumer goods giant Unilever (LON:ULVR) (NYSE:UL). Year-to-date AZN shares are up about 2.5%.

AstraZeneca Weekly Chart.

With that information, let’s look at Oxford Nanopore’s initial public offering (IPO), which has been making headlines.

Oxford Nanopore

Founded in 2005 as a spin-off from the University of Oxford, biotech firm Oxford Nanopore has recently announced a potential IPO in the second-half of 2021. To the delight of the UK's investment management community, the company picked London for the listing.

The biotech group has about 600 employees in the UK, US, Singapore and mainland China. As an DNA- and RNA- sequencing company, Oxford Nanopore has a single-molecule sensing system based on nanopore science that enables DNA/RNA sequencing. For instance, its DNA sequencing device, called MinION, offers a simpler, faster and cheaper alternative to the work done by big clinical laboratories.

In 2017, MinION was tested as part of the scientific research for a potential flight to Mars. Sarah L. Castro-Wallace of the Biomedical Research and Environmental Sciences Division, NASA Johnson Space Center, Houston, Texas and her colleagues highlight:

“Durations for Mars missions are likely to range from 1.5 to three years… There is also a clear need for in-flight clinical diagnostic capability to ensure that any infections can be managed appropriately, including the administration of targeted anti-microbials…. [MinION] sequences DNA and RNA… In order to evaluate the performance of the MinION in a space environment, we tested it aboard the International Space Station (ISS). [Results] demonstrated the feasibility of sequencing analysis and microbial identification aboard the ISS."

Put another way, the company’s work has been known to the scientific community prior to the pandemic.

But the emergence of new variants of the COVID-19 virus (i.e., those known as the Kent, Brazilian, South African or Indian variant), has put Oxford Nanopore in the spotlight. Scientists in these and other countries have been sequencing the coronavirus so that they can track the transmission and evolution.

Oxford Nanopore has so far raised funding from the IP Group (LON:IPO) as well as Tencent (OTC:TCEHY), the Singaporean sovereign wealth fund GIC and Abu Dhabi tech company G42. Institutional funds, including Schroders (LON:SDR) (OTC:SHNWF) and Odey Asset Management have also invested in the firm.

The amount raised has gone over £613 million (US$848 million). The founder and CEO, Dr. Gordon Sanghera said:

An IPO is the start of the next phase of our journey. Gaining access to deeper, international pools of capital would support our ambitious growth plans, enhancing our ability to innovate and scale our manufacturing and commercial functions.”

Potential investors are excited as Oxford Nanopore currently offers the only sequencing technology of real-time analysis. In recent months, it has also developed a rapid and scalable COVID-19 test, namely LamPORE, to support expanded high-accuracy testing in the UK. The firm also has more than 1,400 patents as well as numerous patent applications that could have implications for a broad range of industries.

IP Group currently holds a 15% stake in Oxford Nanopore, an amount currently valued at £340 million (US$470 million). Analysts expect the valuation to surpass £4 billion (US$5.53 billion) in the coming months.

Bottom Line

It will still be several weeks before Oxford Nanopore becomes a public entity. Therefore, it is still early to know how the share price will fare. When looking at new drugs and vaccines, three significant points are particularly important:

  • Clinical issues (effectiveness and safety);
  • Regulatory issues (will national regulators approve the drug/vaccine?);
  • Commercial issues (successful manufacturing and distribution capability).

In the coming months, the scientific community, as well as investors, will wait for exciting updates from Oxford Nanopores.

Those investors who are looking for other UK-headquartered pharma firms playing essential roles in the fight against the COVID-19 virus might be interested to research two other FTSE 100 members, namely GlaxoSmithKline (LON:GSK) (NYSE:GSK) and Hikma Pharmaceuticals (LON:HIK) (OTC:HKMPY).

With an enviable drug pipeline, GlaxoSmithKline has the sixth-largest market cap on the UK index. Management says, the group is:

"... collaborating with several organizations working on promising COVID-19 vaccines by providing access to our adjuvant technology. The use of an adjuvant is of importance in a pandemic situation where there is significant demand for a vaccine, since it may allow more doses to be produced from less ingredients and, therefore, enable manufacturing at scale. "

Generic drugs market firm Hikma Pharmaceuticals has been manufacturing Remdesivir—Gilead Sciences' (NASDAQ:GILD) antiviral drug—under contract in Portugal. In October 2020, the US Food and Drug Administration (FDA) approved Remdesivir for coronavirus treatment of hospitalized patients.

We have to point out that the work done by these pharmaceutical firms or any other newcomers in the future will not end with COVID-19. According to a report by MarketsAndMarkets:

"The global vaccines market is projected to reach US$58.4 billion by 2024 from US$41.7 billion in 2019, at a CAGR of 7.0% during the forecast period."

Finally, market participants who do not want to commit full capital to any single name could consider buying a thematic exchange-traded fund (ETF). Examples include:

  • ETFMG Treatments, Testing and Advancements ETF (NYSE:GERM)
  • SPDR® S&P Biotech ETF (NYSE:XBI)
  • VanEck Vectors Biotech ETF (NASDAQ:BBH)
  • Virtus LifeSci Biotech Clinical Trials ETF (NYSE:BBC)

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