How has Covid-19 affected small pharma?

Companies leading the Covid-19 vaccine race have understandably dominated healthcare headlines over the past year, followed closely by those working on virus treatments and testing. Together, jabs, medicine and diagnostics are generally perceived to be the golden trio that will save lives and allow the world to exit lockdown for good.

But far below the echelons of Big Pharma and high-profile biotech firms exists a cohort of much smaller, lesser-known healthcare businesses, each with their own challenges and opportunities. Many such businesses have also been directly affected by the ongoing pandemic or have even contributed to the fightback against it.

Some minnow Plcs have ridden the crest of the coronavirus wave, propelled forward by the need for urgent research and development (R&D) in their designated fields. Others have been badly knocked by a drop-off in routine doctors’ appointments and medical activity during the global crisis. In several cases, both themes have come into play. The outbreak of Covid-19 hampered trading for a period of time, before easing up in line with the lifting of restrictions to give rise to a surge in pent-up demand.

A spate of earnings releases from UK-quoted small caps has brought these trends to the fore in recent days. From drug manufacturers to those specialising in disease detection, Covid has left its mark and potentially transformed the future of a select few Aim-traded pharma constituents.

Non-essential backlog

Surgical Innovations (SUN), which is valued at just over £24m, provides tools used for laparoscopic, or keyhole, surgeries. Thus, as coronavirus took hold last year and non-essential operations were put on ice, the group’s revenues endured a severe blow, dropping two-fifths overall for the 12 months ending 31 December to just £6.3m. In turn, Surgical posted adjusted cash losses of £0.7m versus an (admittedly meagre) prior-year profit of £1.5m when it reported on 25 March.

But management expects to see a strong recovery as the huge backlog of patients awaiting surgery, estimated between 8.4m and 10m in the UK, is tackled. Already, sales are more than a tenth higher for the first two months of the new year than the comparative pre-pandemic period.

The group also took steps to safeguard its financial position during the lengthy period of Covid-induced disruption, including tapping investors for £2m in September.

Sustainable healthcare

The trajectory of coronavirus, its knock-on impact on hospital activity – and, thus Surgical Innovations’ trading – remains uncertain. But looking beyond the pandemic, the NHS’s push towards a more sustainable healthcare model could stand the group in good stead. Supporting that goal, Surgical has intensified its focus on sustainable solutions to plastic waste in operating theatres. 

“We think that we are unique in our offering of ‘Reposable’ products”, says chief executive David Marsh. The main part of any device that it makes is reusable, but the other key parts, such as scissor blades, are disposable.

A clinical white paper with the Centre for Sustainable Healthcare suggests that the adoption of “hybrid” laparoscopic instruments in gall bladder removal surgery could save the equivalent of 30 metric tons of plastic waste each year.  In CO2 terms, that equates to driving 1.2m miles in a standard family car. Using such hybrid tools could also save the NHS millions of pounds, the research moots.

Testing, testing

Roche (SW:RO) and Abbott Laboratories (US:ABT) might be the first names that come to mind at the thought of Covid-19 diagnostics. But various smaller businesses have stepped up to the plate, too.

In and among them is EKF Diagnostics (EKF), whose market cap sits at just over £330m and whose full-year revenues were significantly bolstered by its Covid-19 testing products. These include a sample containment device that allows the safe handling, transportation and analysis of test swabs and samples, and which EKF manufactures under licence. The group has also secured rights to ‘Covid-SeroKlir’, an antibody test produced by Kantaro Biosciences.

Revenues rose 45 per cent to £65.3m last year, EKF said on 30 March, while adjusted cash profits more than doubled to £25.5m. But aside from its Covid-19 contract manufacturing business, non-virus-related sales were down 14 per cent to £38m.

Coronavirus is thus the fuel behind EKF’s current trading. And having already upgraded its guidance multiple times, EKF did so again on results day – flagging a new multi-million dollar global supply deal with its private sector partner, with whom a Covid testing agreement was originally announced last August. The initial deal was worth £3m and covered UK staff testing for the customer. That agreement has now almost doubled in value.

House broker N+1 Singer lifted its 2021 sales forecast by more than a fifth in response to £65m. The shares climbed more than 3 per cent in morning trading on Tuesday, taking their 12-month gains to roughly 160 per cent.

mRNA potential

For some smaller drug and healthcare companies, the income statement inevitably takes a backseat to R&D news. Silence Therapeutics (SLN), a specialist in ribonucleic acid (RNA) therapies that silence disease-causing proteins, is a case in point. While revenues came in at £5.4m, up from £0.2m, pre-tax losses widened from £22.9m to £36m last year.

Still, management called 2020 “transformational” for the group, allowing it to enter 2021 as a “clinical-stage company” with three early-stage data read-outs expected.

It helps that two mRNA based Covid-19 vaccines have been greenlit in recent months. “There is more awareness and increasing appreciation for the potential benefits of mRNA-based therapeutics”, management argues.

The pandemic has proved disruptive and even destructive for companies large and small, the world over. But it has also given some less sizeable entities a moment to shine. The question now is whether they have the strategic prowess and wherewithal to sustain such moment into the long term.