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As the Scancell (SCLP) share price falls, should I buy?

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Scientist filling a needle
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It’s been a rewarding year for shareholders of Scancell (LSE: SCLP), whose shares have risen 187% in the past 12 months. But lately they have stalled, giving up 25% of their value since February.

Here I explain why the shares have been dropping, and my next move.

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Vaccine hopes

Scancell is primarily a developer of immunotherapies for cancer. But during the pandemic, it has pivoted towards Covid-19. The company has developed a vaccine it hopes is cheap, effective and scaleable. With massive global demand for vaccines to suit all budgets, the market warmed to this new focus by Scancell.

Last month the company announced that  it obtained local regulatory permission for a Phase 1 clinical trial of its COVIDITY vaccines in South Africa. That puts it well behind larger competitors, such as Pfizer and AstraZeneca, that long since completed the equivalent clinical trial phase of their vaccines and have been rolling them out commercially since last year. However, I don’t think that means Scancell is too late. There’s large global demand for vaccines. It could be that Scancell ends up offering a cost or availability advantage that makes its vaccine more appealing to developing countries, for example.

The company took advantage of improved sentiment about its prospects to boost its liquidity last year, issuing £15m of new shares.

Where next for the Scancell share price

I think this year’s pullback in the Scancell share price reflects investor impatience. An initial burst of enthusiasm at the prospect of the vaccine programme has started to ebb away over time.

But I still think the programme could unlock more value in future for the company. If clinical trials are successful, this modestly-sized UK company will have a vaccine in demand by the millions across the world. That could certainly help boost the share price.

But if the vaccine programme turns out to be disappointing, the premium that the Scancell share price has attracted during the pandemic could fall away completely. That isn’t the end of the road, though. Scancell had a long-standing immunotherapy programme before the pandemic. In the short term at least, COVIDITY failure could lead to the Scancell share price plummeting. But the company maintains its cancer immunotherapy programme. Further success in that could help support the price in future, independently of the Covid-19 vaccine workstream.

Some major risks

Clearly, a lot currently rides on the Covid-19 programme. Like many medical development companies, Scancell has been consistently loss-making for many years. That can only go on so long before a company needs to boost its liquidity. It was able to do that last year, but at the cost of diluting existing shareholders. There’s a risk that costly drug development and testing could create a similar need to boost liquidity in future.

My next move on the Scancell share price

With so much riding on the final outcome of the clinical trials, the stock feels highly speculative to me right now. A good result could push the share price to an all-time high. But equally, a disappointing outcome in the South African trial could lead to the share price crashing.

So while I will be following the clinical trials with interest, I won’t be adding Scancell to my portfolio.

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Christopher Ruane 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.

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