All eyes are on when shuttered economies can start to reopen as coronavirus infection rates appear to be falling.
In the absence of a vaccine, which could still be 12 to 18 months away even if clinical trials start this summer, then coronavirus testing will become increasingly important.
So canny traders are hungrily eyeing potential long bids in biotech firms large and small. There is one trade we think has potential: Scottish life sciences firm Omega Diagnostics (LSE:ODX). It has an antibody test for Covid-19 and announced in an RNS today it would make 46,000 a day on behalf of London biotech outfit Mologic. At full capacity, that represents 1.15 million tests a month.
Before UK markets opened on Monday 20 April, Omega reported it had signed a material transfer agreement to allow Mologic access to its manufacturing set up in Ely, near Cambridge. Omega already produces bioscience testing for a range of infection diseases, including malaria, dengue fever and tuberculosis.
On the trading side, volume has been steadily rising to the point where the shares have gapped up three times in two weeks, and research suggests there could be much more upside to come.
16 April saw trading volume top 1 million shares, after bumbling along in the 10,000 to 100,000 range for weeks on end. But traders have been taking profits fairly regularly with heavy selling pressure. If I was trading, I would be waiting to see a breakout above resistance. This could be a momentum trade if you can pick your entry point.
RSI indicators are north of 80 at time of writing, showing the stock heavily overbought. Previous jumps to the upside have been accompanied by an RSI north of 88 or more.
Why this happened
Governments worldwide, from Denmark to Germany and Israel to Poland are cautiously lifting some lockdown restrictions to reopen their ravaged economies.
In the UK, Covid-19 testing companies have been vital for two stages of testing. The first test checks whether patients have the virus. Statistics suggest the UK medical profession has carried out 482,000 such tests.
The second stage, more crucially, uses antibody testing to identify whether people have been infected with coronavirus in the past and have recovered. It can also determine those who may have been infected but were asymptomatic and displayed no outward indications of the disease.
Roche (SWX:RO), which launched its stage one PCR test in mid-March to detect active infections, said in a 17 April press release that its stage two antibody test will launch in early May.
This kind of testing can support screening of high-risk, high priority groups like frontline healthcare workers or food supply staff who may have developed immunity and can therefore return to work.
Scaling up is going to be the issue for Omega. Novacyt has managed it, but only with several UK and non-UK manufacturing partnerships.
Roche, by contrast, is targeting production in the high double-digit millions of tests per month.
Still, there is a place for all bioscience firms to contribute. As we have already seen in the US, government procurers have to compete with not only other countries but big-budget states as well.
The one that got away
You might be one of the investors who missed out on Novacyt (LSE:NCYT). There’s certainly a lot of traders grinding their teeth for not spotting this opportunity earlier: the Anglo-French biotech firm partnered with one of our other recent picks YourGene Health (LSE:YGEN) to ramp up production of its coronavirus testing kits.
The share price has rocketed an astonishing 7500% in the last three months after getting WHO, Public Health England and FDA approval. More contracts have followed from and a 15 April RNS noted Primerdesign “has now achieved the target runrate of manufacturing its COVID-19 test at a rate of four million tests per month.”
Novacyt says it can double production to eight million tests a month by scaling up its Southampton site, having signed partnership agreements with two UK firms, BioPharma Proces Services and Biofortuna. It has since seen emergency use approval granted in India, Indonesia and Saudi Arabia.
On the first day of 2020 the NCYT share price was 14p, giving it a market cap of £9.5m. In the three months since that has grown to £236 million with an all time high price of 491p on 14 April.
We are living in unprecedented times and I don’t think anyone in their right mind could have predicted that a tiny biopharma firm like NYCT would hit nearly 500p.
Trading in ODX is going to be a case of how far you believe hype can push the stock.
