More disappointing news continues to push the Novacyt (LSE:NCYT) share price downward. This diagnostics firm has had a rough year. After nearly half its revenue stream was wiped out following the loss of a DHSC contract, the stock tumbled almost 50% in the last 12 months. Recently, management provided an update on its research & development activities that wasn’t particularly well-received by investors. As such, the decline continues with another near-5% drop since the announcement was made.
So, what exactly are investors upset about? And is this negative performance actually a buying opportunity for my portfolio? Let’s take a closer look.
A mixed bag of an R&D update
I’ve explored Novacyt before. But as a quick reminder, it’s a medical diagnostics company that specialises in pathogen testing kits. Needless to say, the pandemic created quite a favourable environment for it to thrive in. And in 2020, this stock was like a rocket ship after it became the first company to release a Covid-19 testing kit.
Unfortunately, this first-mover advantage didn’t last long. Other companies began developing their own cheaper kits. And this fierce competition likely contributed to the loss of the DHSC contract. Since then, Novacyt has been investing its capital in creating new products for the private sector.
The latest research & development update shed some light on the progress being made. And despite what the NCYT share price would indicate, there have been some encouraging advancements. Its Winterplex test for the 2021-22 flu season has been launched. And Escapeplex, for detecting four different variants of Covid-19, is also good to go. Meanwhile, the firm has co-developed a new tool called CO-Prep. This automates the process of liquid handling by lab technicians for its PROmate testing kit, reducing the risk of contamination and saving time.
However, as encouraging as this is, further disappointing news arrived surrounding its PathFLOW kits. Due to a backlog of regulatory approval applications and supply chain disruptions, Novacyt’s Covid-19 self-lateral flow tests have been delayed. And it could be another six months before they reach the market. Given that the pandemic is slowly coming to an end, the demand for these products is bound to fall. Consequently, they may no longer be as lucrative as initially anticipated. Therefore, seeing the NCYT share price fall on the news isn’t surprising to me.
Is the falling share price a buying opportunity?
The launch of its Winterplex and Escapeplex tests is an exciting achievement that should help recover some of the lost DHSC revenue. However, as a long-term investor, I’m not tempted by this business. Currently, the vast majority of its income originates from Covid-19-related products. Given that the pandemic is already starting to wind down, it’s unclear how this business intends to thrive in a post-Covid environment. Therefore, while the stock may be poised to surge in the coming months, I’m still keeping it on my watchlist.
Zaven Boyrazian 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.