The Oxford BioMedica (LSE:OXB) share price jumped by double-digits last week following its latest results. This recent momentum has pushed the stock’s 12-month performance to just over 90%. And as a long-time shareholder, I’ve been thoroughly enjoying the returns. But can it continue to climb from here? Let’s take a closer look.
The rising Oxford Biomedica share price
I’ve previously explored this business. But as a quick reminder, Oxford BioMedica is a young biotech firm that created a drug development platform called LentiVector. This has proven to be an essential solution for the more prominent drug developers like Novartis and AstraZeneca. The latter of which also struck a deal to hand its Covid-19 vaccine manufacturing responsibilities to this company.
This manufacturing deal is largely responsible for the rapid rise in Oxford BioMedica’s share price – something I predicted back in November last year. And looking at the latest results, it’s clear to see why. Total revenue is up 139%, reaching £81.3m versus £34m over the same period in 2020.
£75.6m of the total revenue stream originated from its bioprocessing and commercial development division. This includes all the income generated through its partnerships with larger pharmaceutical companies, including AstraZeneca. The rest came from royalties and license fees. However, cash flow in this segment remains fairly volatile. And will likely stay that way until more drugs developed using LentiVector reach the market.
Overall, this explosive revenue growth has led to the company entering the black, with operating profits coming in at £19.7m versus a £5.8m loss last year. However, as impressive as this latest performance has been, there are some brewing concerns in my mind.
The risks that lie ahead
My original and ongoing investment thesis for this business surrounds its LentiVector platform. Clients pay an initial licence fee along with additional royalties should a developed drug eventually make it to the market. This makes it a long-term source of recurring income.
So, I’m disappointed to see that Sanofi is terminating its collaboration and licence agreement with Oxford BioMedica for its haemophilia treatment. The management team expects the impact on revenues over the next 24 months to be negligible. However, it begs the question of whether LentiVector is living up to expectations.
For now, its agreements with other pharmaceutical companies, including its recent collaboration with Bristol Myers Squibb, remain in place. Still, this is something I will be watching closely. Suppose its other partnerships start to crumble? In that case, the Oxford BioMedica share price could do the same.
The bottom line
Overall, my opinions of this business is unchanged. These latest results are quite encouraging. And if the firm can continue to maintain its growth, I wouldn’t be surprised to see the Oxford BioMedica share price climb higher over the long term.
Having said that, I must admit, the stock is starting to look quite expensive. With a price-to-earnings ratio of over 70, the slightest hint of trouble, such as another lost partnership, would likely lead to a significant amount of volatility. With that in mind, I won’t be buying more shares today as I think there are cheaper opportunities to be found elsewhere.