It’s been a torrid few years for shareholders of Oxford Nanopore Technologies (LSE: ONT). Since the biotech company listed on the UK stock market in late 2021, its share price has crashed by more than 80%.
This is sad to see as the FTSE 250 firm’s founders had ambitions to build a homegrown British giant in the healthcare space.
The sharp fall means Oxford Nanopore’s market cap now stands at just under £1bn — hardly the status of a giant!
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Acquisition target
For those unfamiliar, Oxford Nanopore’s devices enable gene sequencing on handheld devices. It pioneered nanopore technology, which reads DNA or RNA in real time by detecting electrical changes as molecules pass through tiny pores.
The stock market slide leaves it open to potential takeover bids, the firm’s co-founder and CEO Gordon Sanghera recently told the Financial Times. Especially as his anti-takeover share — a golden share allowing him to fend off bidders for three years after the IPO — has lapsed.
The FT mentioned that the company might be an attractive target for large US diagnostics specialists like Danaher or Thermo Fisher Scientific. The latter’s market cap is about 158 times larger than Oxford Nanopore’s, so the UK biotech could be a tasty morsel.
I note that analysts’ share price target is currently 174p, which is 67% above the current level. So it’s possible an acquisition could value the company significantly higher than today’s share price of 104p.
Of course, this is all just speculation. And I learned long ago not to invest on the basis of takeover potential alone. Yes, an acquisition may well happen, but it could be some time away and at a lower share price than I’d pay today.
Plenty of risk
To be fair, the company’s revenue growth has been strong, rising from £52m in 2019 to just over £183m last year. And management sees strong double-digit revenue growth continuing. So this is a definite positive here.
However, since 2019, the operating loss has nearly doubled to £152m. Therefore, Oxford Nanopore is still loss-making, and isn’t expecting to reach adjusted EBITDA breakeven till 2027.
By then, it expects the gross margin to increase to at least 62%, up from 57.5% last year. Yet when the company will be reporting actual bottom-line profits is anyone’s guess at this point. This uncertainty around profitability is why I’ve never bought the stock.
Meanwhile, some analysts are flagging the possibility of slower-than-expected growth moving forward, which is a risk here.
Final thoughts
A switch stateside for Oxford Nanopore was mooted a while back, I seem to remember. But would a US listing really help?
I’m not convinced it would, as the US market has hardly been supportive of loss-making firms recently. For example, shares of rival Pacific Biosciences of California have lost 97% of their value in four years. Illumina stock is down 81% over the same period.
Admittedly, Oxford Nanopore has been growing faster than those two. But the shares that have been doing well across the pond (as here) are all profitable. The desire to buy ‘jam-tomorrow’ stocks while interest rates are high generally remains weak.
Therefore, I still have no desire to invest in the shares today.
