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Testing demand buoyed by lockdown easing

The trials and tribulations of the vaccine roll-out have grabbed headlines in recent weeks, but diagnostics are key to getting life back to ‘normal’
April 14, 2021
  • Westminster wants citizens to take two rapid tests a week as restrictions lift
  • Covid-19 has given smaller diagnostic companies a chance to showcase their expertise

The government’s response to Covid-19 has been accused variously of being too slow, inconsistent and – on occasion – just plain confusing.

But one area in which the UK has succeeded, at least for now, is vaccination. More than 32m people have received their first coronavirus jab. More than 7m have received a second dose, granting them even greater protection. Every adult is to be invited for an initial shot by the end of July.

As the days grow longer and the sun shines a little more brightly, those figures have helped to illuminate the end of the lockdown tunnel. Indeed, emboldened by the pace of immunisation across England, the government allowed zoos, gyms, beer gardens and shops to resume trading on 12 April – resurrecting some of the sectors hardest hit by virus-induced restrictions.

Yet for all its unprecedented speed and demonstration of the power of science, the vaccine saga has been far from straightforward. Its complexities were epitomised just last week by bad news for the Oxford university/ AstraZeneca (AZN: Buy, 11 Feb 2021) jab roll-out. Amid mounting concerns about a suspected rare side-effect of blood clotting, under-30s will now be offered an alternative injection.

 

Vaccines chasing re-openings

Moreover, the wider vaccine roll-out is racing against the reopening of the economy. That is before mentioning the slower rate of inoculation overseas. As tourism picks up again, the probability of importing Covid-19 cases from abroad will only increase. The same goes for virus variants.

Diagnostics will thus remain a vital weapon in Downing Street’s arsenal. Covid-19 tests have ramped up in the UK from zero last spring to 1.2m a day. And as ‘stay at home’ mandates ease, testing will only become more important – in turn drawing greater levels of investment.

Authorities are already working with schools, employers and staff to trace the virus and break chains of transmission as lockdown ends. Everyone in England, including those without symptoms, can now take a free rapid coronavirus test twice a week. Businesses including the Financial Times Group are asking staff to test regularly before entering the workplace.

 

Testing, testing

Swiss giant Roche (SWX:RO) and New-York-quoted Abbott Laboratories (US:ABT) sit among the international cohort of ‘mega testers’ with billion-dollar market caps. Yet UK shores have also yielded a strong contingent of diagnostics companies large and small, for whom the pandemic has provided an opportunity to showcase their technologies and, in many instances, to bolster their top lines.

 

Tracking variants

Oxford Nanopore is a case in point. The group secured a £113m contract last summer to supply the UK government with its ‘LamPORE’ rapid testing kit for Covid-19. Quite a sum compared with Oxford’s 2019 revenues of £52m.

The company, which was spun out of Oxford university in 2005, focuses on genomic sequencing technology. Its expertise has been used during the pandemic to track Covid-19 variants around the world.

In March, Oxford unveiled plans for a London flotation – and as Nilushi Karunaratne explored last week, it could be valued at more than £4bn by one estimate.

 

Smaller stocks

At the smaller end of the testing scale sit Plcs including Aim-traded Omega Diagnostics (ODX), which has agreed a contract with the Department of Health and Social Care (DHSC) to provide manufacturing capacity for lateral flow (rapid) antigen tests. The group is set to achieve production capacity for roughly 2m tests per week by the end of this month, it said in March. Shares in Omega have climbed 300 per cent in the past year, amounting to a market value of £155m.

Minnow company Abingdon Health (ABDX) was also chosen by the health department to make rapid antibody tests for Covid-19, showing whether people have previously been infected by the illness. Such products could feasibly help to coordinate vaccination programmes, among other applications. Abingdon only began trading on Aim in December but its first set of half-year numbers showed revenues rising almost fivefold, albeit alongside a pre-tax loss.

SourceBio International's (SBI) IPO on the junior market took place in October. While 2020 results showed a more than doubling of annual revenues to £50.7m, over two-thirds of that figure stemmed from SourceBio’s new infectious disease testing business, which includes workplace Covid testing and consumer ‘test to release’ travel kits.

Meanwhile, aided by Covid testing products including a sample containment device, EKF Diagnostics’ (EKF) full-year revenues rose almost a half to £65.3m.

 

Pandemic uncertainty

That said, as companies of every ilk have repeatedly cautioned, we are in uncharted waters. The path of the pandemic cannot be foretold. The same is true of virus-related business agreements.

Recent events at Novacyt (NCYT) reflect the sharper edge of contract uncertainty. Amid escalating market enthusiasm, the small diagnostic company’s shares soared more than 8,000 per cent between January and October last year. Yet they plunged two-fifths on 9 April after Novacyt said its supply deal with the DHSC had not been extended.

This contract made up half of Novacyt’s first-quarter sales. The parties are now in dispute regarding the agreement, which could materially impact fourth-quarter revenues, although the company believes “it has strong grounds to assert its contractual rights”.

Therein the predicament lies. Coronavirus has marked an inflection point for many smaller diagnostics companies, but its inherent unpredictability means testing demand may rise and fall over time, particularly as more players enter the competitive arena. Larger companies might look better placed to stomach delays and terminations, not least because of revenue diversification. However, the opportunities for stellar growth could be fewer and farther between.