Could this small-cap biotech stock beat the UKOG share price?

UK Oil & Gas plc (LON: UKOG) is a growth investors’ favourite, but we shouldn’t overlook the potential for biotechnology profits too.

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In all the years I’ve been following the stock market, the key sectors for those looking for high-flying growth shares have been oil exploration and technology — with biotechnology capturing a lot of investor cash in that latter set.

I’ve liked Oxford BioMedica (LSE: OXB) for some time as a ‘blue sky’ candidate — a company that isn’t currently making any profits, but looks like it has strong potential. Since I last looked at the gene and cell therapy researcher in February, the share price has gained another 48%, and it added a couple of percent Tuesday after the firm announced its latest success.

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Novartis has received approval for its CAR-T cell therapy, Kymriah, for the treatment of various kinds of lymphoblastic leukaemia and lymphoma, and Oxford BioMedica is “the sole manufacturer of the lentiviral vector that encodes the CD19-directed chimeric antigen receptor in Kymriah.” I’m not going to pretend I know what that means, but Oxford BioMedica signed an agreement last year for the supply of lentiviral vectors to Novartis. The company says it could potentially receive more than $100m for this over three years, coupled with currently undisclosed royalties — and I do know what that means.

First-half results from Oxford BioMedica are due on 13 September, and what I’ll mostly be checking is the firm’s current liquidity and its potential for some actual profit this year. Forecasts suggest around £9m in pre-tax profit, though at this stage that’s not a long way above zero and I’ve seen early blue sky profits like this subsequently reversed. 

The company had £14.3m in cash at 31 December 2017, and enjoyed a £20.5m placing in March, so funding is still vitally important. But as long as that looks good, I still see an attractive growth candidate here.

Beating oil?

UK Oil & Gas (LSE: UKOG) has followed a typical oil explorer trajectory. The potential hydrocarbon wealth at the Horse Hill operation near Gatwick, which the firm shares with a number of other prospectors, led to a pile-in from investors in mid-2017. But as is often the case, the excitement turned out to not have considered all the risks, and early flow tests encountered difficulties.

As I said when I last looked at UKOG at the end of June, the company’s new planned flow tests could make a big difference. The balance between funding the exploratory work and the timescale to actual commercial pumping tends to be critical for small operators, especially those not making any profit.

In early August we had the results, with implied stable daily pumped rates of 401 and 414 barrels of oil from the firm’s Portland tests, which continued for six hours and two hours respectively. The report also told of “solution gas rates of around 41,000 cu ft per day.

Chief executive Stephen Sanderson described this as “excellent short-term high-rate test results,” pointing out that “potential future near-term cash flow from the Portland is very important to UKOG.” And that is critical — the long-term potential (with long-term testing set to happen soon) won’t be achieved if the company doesn’t make it financially.

I reckon the signs are indeed turning positive for UKOG, but right now my money would be on Oxford BioMedica — it looks like considerably lower risk to me, but still with serious growth potential. 

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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