Novacyt: cash pile builds amid Covid sales boom

Latest figures from the Covid testing kit firm show how transformational the past few months have been. 

In-demand Novacyt (LSE:NCYT) shares showed more signs of coming off the boil today, despite the company generating sales and orders for its Covid-19 tests some 10 times its 2019 revenues.

The AIM-listed stock caught the imagination of retail investors after its early-mover success in developing a test for the coronavirus triggered a 3,000% rise for shares since January.

They peaked at 529p on 16 April and became one of that month's most-bought stocks on the interactive investor platform, only to drift back towards the 300p mark in recent trading.

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

There was plenty of encouragement in today's trading update, with Novacyt reporting sales for its Primerdesign Covid-19 test of £40 million alongside further orders worth £80 million. The total represents a £30 million rise on the figures reported just over a month ago, as well as a far cry from the £12 million of revenues generated by the whole business in 2019.

Novacyt is now selling its test in more than 130 countries, with the biggest customers being the UK and Germany. It is also making progress in the US market, although in France the company has suffered a setback after regulators failed to approve the test for reimbursement.

The Haute Autorité de Santé said this was because the Covid-19 test has been developed with one single gene target. Novacyt pointed out that the test already had clinical approval from the Institut Pasteur, an internationally renowned centre for biomedical research in France, adding that it can still sell the test in the country for private patients.

Shares went as low as 300p Tuesday after the update and at lunchtime trade 8% lower at 309p. The recent decline may also reflect signs that the virus is losing its potency in many European countries, as well as the possibility that a vaccine could eventually reduce demand for diagnostic testing.

• Insider: bosses make fortunes backing Covid-19 winners
• Covid-19: winning AIM stocks fighting the virus

Manchester-based diagnostics firm Genedrive, which has also seen a dotcom style surge for its shares on the back of its easy-to-use test for high-throughput coronavirus testing, has fallen back from 220p in early May to 151p today. It had been trading at 9p in late March.

Novacyt CEO Graham Mullis pointed out that he expected demand for Covid-19 testing to continue to grow as new regions of the world are impacted by the pandemic.

Zimbabwe’s Ministry of Health and Child Care has just awarded a contract for the supply of 1.5 million tests, which is the largest order secured by Novacyt outside of the UK so far.

Novacyt is already committed to supplying 288,000 tests per week to the UK's Department of Health for use in the NHS, with the option to expand the agreement. 

It has an overall initial target of more than 10 million tests per month, which the Paris and Camberley-based company is meeting through eight dedicated manufacturing sites. 

The company is also working on further innovation to support laboratories during the pandemic, including a mobile Covid-19 system due to launch in July. Should the current level of activity continue across 2020, Mullis has predicted it will be “financially transformational” for the business.

The low capital intensity of its manufacturing process has already enabled significant levels of cash to be generated, with Novacyt's balance sheet showing more than £8 million of cash at the end of April, compared with a closing 2019 balance of £1.6 million.

Novacyt also stands to reap benefits from a much bigger base of global customers for its wider portfolio covering diagnostic products in oncology, microbiology and haematology.

• Why Genedrive shares are up 3,200% in just six weeks
• Stockwatch: two coronavirus stocks where momentum favours the brave
• Take control of your retirement planning with our award-winning, low-cost Self-Invested Personal Pension (SIPP)

The Covid-19 polymerase chain reaction test was developed by its molecular diagnostics division, Primerdesign, which was founded in 2005 by Dr Rob Powell as a spin-out from Southampton University and funded by a single £30,000 loan. The business became profitable in its first year and required no further investment funding until its sale to Novacyt in May 2016.

The pace at which the company acted on coronavirus shouldn't come as a total surprise, given that the Primerdesign division also developed molecular tests for other major incidents, such as the outbreaks of Swine Flu in 2009, Ebola in 2014 and Zika in 2016.