Oxford Nanopore share price falls, but are long-term gains ahead?

Oxford Nanopore’s [ONT] share price surged 44% on its first day of trading on the LSE last week. And that’s not the only big number involved with Oxford’s Nanopore’s listing. It’s London’s eighth-biggest listing, and it’s biggest biotech listing

“Oxford Nanopore represents one of the most exciting London IPOs this year,” said Sebastian Skeet, senior healthcare sector analyst at Third Bridge.

A successful IPO was seen as a big test for London as a destination for high-profile tech-related companies to list. Online takeaway service Deliveroo [ROO] stumbled earlier in the year on its much-hyped debut, while cybersecurity firm Darktrace’s share price is up over 166% since its debut (as of 15 October).

At IPO Oxford Nanopore’s share price was 425p, which shot up to 645p in intraday trading on 1 October. That took its market capitalisation to over £5bn and even with the recent dip, the valuation stands at £4.5bn - making it a win for London, at least.

“Oxford Nanopore represents one of the most exciting London IPOs this year” - Sebastian Skeet

Yet despite the opening day surge in Oxford Nanopore’s share price, the stock has already stumbled. Down over 3% since listing, investors might be wondering if further falls are in store for the company or if now is a buying opportunity for medium to longer-term growth.

Why should investors care about Oxford Nanopore’s share price

While it’s true that last Wednesday Oxford Nanopore’s share price was down over 10% since listing, the end of the week saw it claw back some of those losses. Friday was a particularly good day for Oxford Nanopore’s share price with the stock climbing 4.3% to close at 594p. 

Oxford Nanopore specialises in making devices used for DNA and RNA sequencing to analyse COVID-19 variants. Revenue grew from around £52m in 2019 to almost £113m in 2020 off the back of government contracts triggered by the pandemic. The firm is reportedly planning further expansion into the applied genomics market, which could drive revenue over the coming years.

So, how big is the genome market going to be? Research from Mordor Intelligence suggests the market will go from $19.5bn in 2020 to $47bn by 2026, a CAGR of nearly 15.89%. The researchers at Mordor Intelligence highlight ‘growing government support and increased number of genomics studies, declining sequencing cost, and increased genomics applications.’

“The genomics market is geared to exponential growth" - Mordor Intelligence

 

“The genomics market is geared to exponential growth due to the essential genetic developments and their applications in numerous areas of study, such as intragenomic phenomena, like epistasis, heterosis, pleiotropy, and other associations within the genome between alleles and loci. Bioengineering and synthetic biology applications are expected to further propel the growth of the genomics market,” Mordor Intelligence writes

Another plus point is that its technology is portable when compared to its rivals' offerings.

“It’s essentially the smartphone of sequencing . . . in a world of mainframes,” said Stefan Hamill, life-sciences analyst at Numis. “It’s a globally leading technology and it’s real technology.” Numis also acted as book-runners for Oxford Nanopore’s IPO.

Longer-term case for Oxford Nanopore’s share price

Oxford Nanopore is currently unprofitable - after all, it is still in its growth phase - and analysts expect it to swing into profit in 2026, according to The Motley Fool’s Charles Archer.

Yet for Archer, the fact that Oxford Nanopore is a growth stock leaves it vulnerable with rising interest rates around the corner.

“As profits seem to be years away, I’ll be ignoring the Oxford Nanopore share price. It might be revolutionary, but I worry about the company’s financial prospects as monetary policy tightens.”

“As profits seem to be years away, I’ll be ignoring the Oxford Nanopore share price. It might be revolutionary, but I worry about the company’s financial prospects as monetary policy tightens” - Charles Archer

 

Still, Oxford Nanopore has some heavyweight backing. A few weeks ago Oracle invested £150m, subject to approval, into the company. Oracle is partnering with Oxford Nanopore to research DNA/RNA sequencing to identify and treat new and existing diseases, as reported by Nasdaq. It will also integrate Oxford Nanopore’ s DNA/RNA sequencing technology throughout its healthcare and life science platforms. Having Oracle invest in your technology is no bad thing for a company on the up.