Shares in Oxford BioMedica (LSE: OXB) have slumped by 39% since the turn of the year. They’re down by a further 6% today following an update. It provides clues as to whether now is a good time to buy it, or whether investors should buy a slice of healthcare sector peer GlaxoSmithKline (LSE: GSK) instead.
Oxford BioMedica’s results for the six months to 30 June show that the company is making encouraging progress. Its contract with Novartis is progressing well and contributed to 184% growth in sales during the period. There are also multiple confirmed purchase orders through to the second quarter of 2017 and Oxford BioMedica’s capacity expansion of its bioprocessing and laboratory facilities are now complete.
A collaboration with Green Cross LabCell has also been signed. This will identify and develop gene modified natural killer (NK) cell-based therapeutics. Green Cross has also taken an equity stake in Oxford BioMedica as part of a £10m placing. The funds will be used to progress its discovery and pre-clinical projects, as well as develop valuable intellectual property relating to the LentiVector platform.
Looking ahead, Oxford BioMedica is forecast to remain lossmaking in the next two years. As such, it would be unsurprising for there to be a further fundraising in the medium term following today’s placing announcement as well as the £7.5m placing in February 2016.
Lower risk?
Clearly, Oxford BioMedica has a bright long-term future and its strategy is sound. However, given the uncertainty faced by investors at the present time it may be prudent to buy stocks with lower risk profiles, but which also have excellent long-term growth prospects. One such company is GlaxoSmithKline, which is exceptionally well-diversified and is forecast to grow its bottom line over the next two years.
For example, GlaxoSmithKline’s earnings are due to rise by 27% in the current year and by a further 7% next year. This has the potential to boost investor sentiment – especially at a time when GlaxoSmithKline trades on a price-to-earnings (P/E) ratio of just 16.8. Its three-part business model also means that it has a very stable outlook compared to pharmaceutical peers. GlaxoSmithKline’s consumer goods division offers relative stability, while its vaccines and pharmaceutical potential is high due in part to its large and well-diversified product pipeline.
Of course, GlaxoSmithKline also offers a high yield. It stands at 5% at the present time, while Oxford BioMedica offers no dividend. This is understandable since Oxford BioMedica is a relatively small business focused on growth and in turning a profit in the near future. However, with cash returns and other asset classes offering disappointing income options, a 5% yield could prove to be popular among investors and may lead to high demand for GlaxoSmithKline’s shares over the coming years.
As such, while Oxford BioMedica has potential, GlaxoSmithKline is a much better buy right now. Its mix of growth potential, low risk and income return make it one of the most enticing stocks in the FTSE 350.
