1 hidden growth stock I think can become a leader in this $14bn industry

Biotech has become a powerful source of growth for big pharma. Zaven Boyrazian takes a closer look at a growth stock that could capitalise from it.

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Gene and cell therapy is a rising star within the biopharma industry as an effective method to tackle a vast array of complex diseases from ocular to respiratory.

As of the end of 2019, just over 1000 clinical trials worldwide are pursuing this new approach to treat patients, almost double since 2016.

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There are currently only eight Food and Drug Administration (FDA)-approved treatments worldwide. However, former FDA Commissioner Scott Gottlieb stated that they expect to approve 10 to 20 new gene and cell therapy products every year, by 2025.

Essentially, these treatments use “vectors” to inject genetic information into the cells of a patient to teach the immune system how to fight the disease itself.

Some of the largest pharma companies in the world, including Bristol Myers Squibb, Novartis and Sanofi, are all developing gene and cell therapies. However, a common factor between all of them is Oxford Biomedica (LSE:OXB).

The growth stock engages large pharma companies through partnerships on its proprietary LentiVector platform. Utilising its expertise, the platform enables its partners to develop new treatments that are deemed too technically challenging or expensive to pursue.

The revenue stream consists of income from the bioprocessing and development services provided by Oxford Biomedica, and income from licenses & royalties of FDA-approved products that were developed on the platform.

While license & royalties remains a relatively unstable source of revenue, both revenue streams have seen impressive levels of growth, with total revenue increase by an average of 41.7% since 2015.

£m

2019

2018

2017

2016

2015

Bioprocessing & Development

47.3

40.5

31.8

22.6

11.3

Licenses & Royalties

16.8

26.3

5.8

5.2

4.6

Total Revenue

64.1

66.8

37.6

27.8

15.9

As it stands, Oxford Biomedica only has one FDA-approved product under its belt: Kymriah by Novartis. Subsequently, the revenue from Licenses & Royalties mostly consists of licenses which are unpredictable in timing, hence the volatility between 2017 to 2019.

However, there are currently 18 other products in development using the LentiVector Platform, 8 of which are in stage one trials, and another actively involved in the development of a covid-19 vaccine. Additionally, a new immunology product by Orchard Therapeutics is in stage three trials.

While some of these products may not succeed, the ones that do will bolster the firm’s royalty income, creating a recurring revenue stream.

Despite the impressive top-line growth, Oxford Biomedica remains unprofitable due to the large R&D expenses incurred to innovate the platform. Naturally, this increases the investment risk; however, despite this fact, the firm has managed to pay off almost all its debt by raising cash from other sources. As of September 2020, the firm retains a war chest of £50.6m cash, with debt at around £8m down from £41m in 2018, an 80% decrease in one year.

The expertise and cost savings offered by the LentiVector platform makes it incredibly sticky, with partners granting Oxford Biomedica quite a bit of pricing power. This, combined with the ever-expanding roaster of partners, forms a network effect adding more value to the platform with each additional product.

While it isn’t the only player in this field, the growth stock appears to be perfectly positioned to take advantage of what’s estimated to be a $14bn industry by 2025.

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Zaven Boyrazian owns shares in Oxford Biomedica. 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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