2021 has not been kind to the Novacyt (LSE:NCYT) share price. Despite rising from 14p at the start of 2020, all the way to 852p by the end of the year, it has since collapsed to around 350p today. While the stock price has still increased by over 50% over the past 12 months, it’s firmly below its 2020 end-of-year high. But is that about to change? Let’s take a look.
The volatile Novacyt share price
I’ve previously explored this business. But as a quick reminder, Novacyt is a medical diagnostics firm that develops and sells pathogen testing kits for the medical, biotech, and food sectors.
When Covid-19 reared its head, the firm’s management team quickly switched its focus to creating a rapid testing kit to help track the spread of the virus. This move turned out to be an excellent decision. Novacyt became the first company to bring a Covid-19 testing kit to the market – enjoying a temporary mini-monopoly in the process. In fact, this is precisely why the NCYT share price exploded last year.
Unfortunately, this upward momentum quickly reversed. A rising tide of uncertainty started brewing among investors regarding how this business would function in a post-pandemic world. Novacyt does have an extensive portfolio of non-Covid-related products. But the level of sales doesn’t come close.
Then in April this year, the worst happened. In a single decision by the Department of Health & Social Care (DHSC), the supply contract between it and Novacyt was terminated – eliminating around half of Novacyt’s Covid-19 testing kit revenue in the process. This devastating blow to the business saw the NCYT share price crash by around 40% within 24 hours.
New revenue on the horizon
The loss of the DHSC contract is disappointing. And while the management team is pursuing legal action to reinstate the agreement, I’m sceptical of the matter being resolved any time soon. But this ultimately may not matter.
Why? Because at the start of June, the company announced it had just launched two new Covid-19 testing kits – one of which has piqued my interest and may be able to propel the NCYT share price once again. The first is a three-gene assay test that allows the business to expand its reach into the travel market since it can be used to quickly verify fit-to-fly certificates. The second is more complex. It is the first single testing kit brought to market that can identify the Indian, South African, and Brazilian variants of Covid-19.
In 2020, Novacyt proved the power of being first, especially when it comes to products in exceptionally high demand. These latest product launches might be sufficient to recover the lost DHSC revenue by expanding its existing pool of private clients, and may even lead to new public sector supply contracts.
The bottom line
The progress made this year by the management team is encouraging. At least, I think so. And if these latest products prove to be as lucrative as the business hopes, the NCYT share price could be on the verge of making an explosive comeback.
Having said that, there remain a lot of unknowns. The good news might come to nothing and at this stage, all I can do is speculate. Therefore, Novacyt is staying on my watch list until more information is available.
Zaven Boyrazian does not own shares in Novacyt. 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.