Will the Oxford Biomedica share price keep on climbing?

The Oxford Biomedica share price is surging after extending its deal with AstraZeneca. Zaven Boyrazian investigates if this momentum can continue.

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The Oxford Biomedica (LSE:OXB) share price reached its highest point in over a decade this month. Like many other biotech companies, the group quickly shifted its focus to help tackle the worsening pandemic. And consequently, the firm landed one of its most lucrative partnerships to date – the manufacture of AstraZeneca’s Covid-19 vaccine.

This deal seems to have been one of the primary drivers behind Oxford Biomedica’s rapidly rising share price in 2020 that helped push it from 673p to 1,000p by the end of the year. This growth has continued since, and over the last 12 months, the stock is up more than 60%. But is this momentum about to accelerate?

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Guidance gets vaccinated

I’ve previously explored Oxford Biomedica and its partnership with AstraZeneca. But as a quick reminder, the company is a small biotech group that has developed a proprietary drug development platform called LentiVector. This technology is ultimately what landed it with an 18-month vaccine manufacturing deal with AstraZeneca as it significantly reduces the hefty development costs of new medicines.

The original contract was expected to generate around £50m of additional revenue for the business. However, last month, the management team made an announcement that saw the Oxford Biomedica share price jump by double-digits within a day. Following the successful production achievements so far, AstraZeneca has agreed to increase the number of vaccine batches that Oxford Biomedica must deliver in the second half of 2021. In other words, the order sizes, and therefore income, from this deal just increased.

It’s not clear as to the exact value of the income this newly reformed agreement will generate. However, revenue guidance was raised from £50m to over £100m from this contract alone. Combining this with the income being generated from the vast collection of other products being developed on LentiVector, I believe 2021 will be a transformative year for Oxford Biomedica and its share price.

The Oxford Biomedica share price has its risks

As promising as this progress is, there are still several risks that this business faces. The most prominent of which is long-term revenue generation. The deal signed with AstraZeneca has a maximum term period of three years. In other words, it may not be a sustainable source of long-term income. This is particularly troubling given how dominant this partnership has become in the overall revenue stream for Oxford Biomedica.

The cash flows generated from this deal certainly provide a large amount of capital for reinvestment. Improvements to LentiVector may, in turn, attract additional customers that can replace the eventual loss of revenue. However, whether this can be achieved before its vaccine contract expires remains to be seen.

Needless to say, if investors see a sudden decline in Oxford Biomedica’s gross income, then I think the share price could begin to experience some significant volatility. After all, it looks like a lot of the firm’s valuation is being driven by future expectations.

The Oxford Biomedica share price has its risks

The bottom line

I’ve been an investor in Oxford Biomedica for several years now. My original investment thesis surrounded the potential of the LentiVector platform. Personally, I still believe that potential remains substantial, even after the AstraZeneca contract expires. Therefore, despite the risks, I’m cautiously optimistic that the Oxford Biomedica share price will continue to climb over the long term.

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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.

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