Covid-19: winning AIM stocks fighting the virus

These small companies offer massive growth potential but must deliver to justify share price gains. 

Two more pandemic-related stocks got Novacyt-style treatment today as AIM investors continue to pile into companies with potential in the fight against Covid-19.

Shares in ImmuPharma (LSE:IMM) surged 25% after the drug discovery and development company said it was looking at a potential Covid-19 application for its existing Lupuzor treatment for life-threatening auto-immune disease lupus.

Fellow AIM minnow, Byotrol (LSE:BYOT), climbed 16% as the infection prevention and control company reported record first-quarter sales and said it had secured two new license agreements.

The pair are among a number of smaller stocks being bought for their Covid-19 potential, with the most significant beneficiaries of this dotcom-style boom being testing firms Genedrive (LSE:GDR) and Novacyt (LSE:NCYT). Others include Scancell Holdings (LSE:SCLP) and Oxford BioDynamics (LSE:OBD.

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Manchester-based Genedrive, which is days away from bringing a high through-put laboratory Covid-19 test to the market, has risen by as much as 3,200% since mid-March. Meanwhile, investors who backed Novacyt in the autumn have seen the shares trade up to 8,500% higher at their April peak after a sustained surge in demand for global testing kits.

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Keeping up this momentum is a whole new challenge, which Novacyt shares highlighted today following the long-awaited publication of the company's 2019 results. The stock fell 9% to 362p and is sharply lower than the spike to a high of 529p recorded exactly a month ago.

The prospect of further progress may depend on whether Novacyt is able to deliver on its goal of more than 10 million tests per month from June onwards.

The Paris and Camberley-based company has quickly established eight dedicated manufacturing sites and is already in a position to service significant and expected growth in demand for its Covid-19 test.

Should the current level of activity continue across 2020, it predicts it will be financially transformational for the business.

In the four months to the end of April, the group achieved an underlying margin in excess of 50%, with the low capital intensity of its manufacturing process enabling significant levels of cash to be generated.

Source: TradingView. Past performance is not a guide to future performance.

The group's net cash balance stood at €9.2 million (£8.1 million) at the end of April, compared with a closing 2019 balance of €1.8 million (£1.6 million). Today's results show the scale of the recent transformation, with revenues down 5% last year to €13.1 million (£11.6 million) for adjusted earnings of €200,000 (£176,800).

Despite seeing increasing demand for its products, working capital restraints hampered progress in 2019. This is now a distant memory, with Novacyt's Covid-19 test enabling it to raise €2.4 million (£2.1 million) through the exercise of outstanding warrants.

The risk for investors is that drugs or vaccines could reduce demand for diagnostic testing of Covid-19. In the meantime, however, Novacyt continues to reap benefits, including from a much bigger base of global customers for its wider product portfolio.

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The focus on ImmuPharma shares has been boosted by a study at Emory University Atlanta, suggesting that Covid-19 and lupus patients might share similar inflammatory symptoms.

ImmuPharma said:

“Given the findings of the Atlanta research group, we postulate that Lupuzor may help to reduce or perhaps prevent the occurrence of the cytokine storm seen in Covid-19 patients. Further exploratory work is ongoing to assess Lupuzor's possible potential and clinical program in Covid-19 patients.”

It is the second spike for ImmuPharma shares in six months after a licence and development agreement with Avion Pharmaceuticals to commercialise Lupuzor in the enormous US market.

Source: TradingView. Past performance is not a guide to future performance.

At Byotrol, demand for its long-lasting germ sanitiser sprays has helped to transform shares from just 1.68p at the start of the year to 5.32p currently. The stock rallied another 13% today after the company announced a 10-year license for Byotrol 24 in the Americas.

The deal will see a Tennessee-based consortium of investors pay an initial fee of US$250,000 (£203,000) plus quarterly royalties based on product sales. Byotrol also confirmed a multi-year license agreement with SC Johnson Professional for alcohol-free hand sanitisers.

CEO David Traynor said the deals will increase distribution into markets that the company could not easily access or at a speed that it could achieve on its own.

Sales in March and April each exceeded £1 million and Byotrol is expecting a similarly strong performance this month. The order book at the end of April stood at over £2 million.

Its supply chain has been working well despite the global shortage of biocidal ingredients, exacerbated by national lockdowns and border closures.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.