Oxford Nanopore moves closer to profitability

  • Customer base grows, but marketing spend hits profitability
  • Comfortable cash levels can support growth

Newcomer to the London Stock Exchange Oxford Nanopore Technologies (ONT), which went public a year ago, says it hopes to enable “analysis of anything, by anyone, anywhere.” But at the time of its IPO, investors were primarily interested in the company’s ability to understand one thing: the biology of new Covid-19 variants.

Shares of the company – which makes handheld sequencing devices capable of analyzing DNA and RNA – jumped more than 40% in the weeks after its IPO. Initially offered to investors at 425p apiece, Oxford Nanopore stock climbed as high as 736p before settling into a downward trajectory in early 2022.

It’s been a tough year for biotech valuations in general, although market enthusiasm around Oxford Nanopore appears to have receded on virus concerns. It can therefore only be a positive sign that the company managed to increase its revenues in the first half by more than a third year-on-year. The broker Numis claims that “the new applications of [Oxford Nanopore’s] versatile long-read sequencing technologies are emerging every day” – and the company’s user base data bears this out.

More than 3,500 research papers have been published by Nanopore customers to date, compared to just under 2,500 as of December 31. It also reported a 16% increase in the number of active users in the first half to 7,300. To date, the company’s technology has been applied in various specialized fields of study, including cancer, diseases pathogens and environmental sciences.

However, to ensure potential customers are aware of the many uses of its technology, the company has had to increase its sales and marketing spend. As a result, it posted a loss of earnings before interest, tax, depreciation and amortization (Ebitda) of £35 million for the six months to June 30. With cash reserves of £603m, Nanopore is still a comfortable distance from the danger zone, with management aiming to break even by 2026.

On another positive note, gross margins for the company’s life science research tools division increased 370 basis points to 54.8% in the first half, driven primarily by greater automation and component recycling. In the medium term, management is targeting revenue growth at a compound annual rate of 30% or more and gross margins above 65%.

However, Numis still expects the business to post losses through 2024. In light of this, we believe that Nanopore is a business that requires a wait-and-see approach at this point, although exciting things may come our way. expect. Hold.

Last seen IC: Hold, 412p, Mar 22, 2022

ORDER PRICE: 285p MARKET VALUE: £2.3 billion
TO TOUCH: 282.5-284.5p TOP OF 12 MONTHS: 736p LOW: 239p
NET ASSET VALUE: 88p NET CASH : £448 million
Half-year to June 30 Turnover (£million) Profit before tax (millions of pounds sterling) Earnings per share (p) Dividend per share (p)
2021 59.0 -44.4 -6.0 nil
2022 122 -27.6 -4.0 nil
% change +107
Ex div: N / A
Payment: N / A

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