Should You Buy Oxford BioMedica plc After Novartis AG Deal Sends Shares Surging?

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2014 has been an astounding year for investors in Oxford BioMedica (LSE: OXB). That’s because the company’s share price has risen by a whopping 83% since the start of the year.

Furthermore, sentiment has been strengthened today due to a deal with Novartis that could prove to be a game changer for Oxford BioMedica.

With shares having had such a good run, is it now too late to buy? Or, can Foolish investors still benefit from further share price gains moving forward?

Major Deal

The deal struck with Novartis AG is hugely significant for Oxford BioMedica and has the potential to substantially change the company’s finances moving forward. Indeed, the deal could be worth up to £55 million to the company as it partners with Novartis in terms of providing specialist materials needed for experimental cancer research over the next three years.

The terms of the deal include an upfront payment of around £8.6 million, as well as Novartis taking a 2.8% share in Oxford BioMedica. It also includes milestone payments which could transform Oxford BioMedica’s bottom line, which has been in the red for a number of years. Furthermore, the deal could mean that the company no longer needs to rely upon its shareholders (via share placings) to keep afloat over the longer term.

Clearly, this would be great news for investors, not only in terms of their own cash flow, but also because it would afford Oxford BioMedica the opportunity to ramp up its investments in future years. Such activity could provide further deals moving forward.

Looking Ahead

While the deal is hugely significant for Oxford BioMedica, it has been a long time coming. As mentioned, investors in the company have endured placings in recent years as well as a share price performance that, until the latter part of 2013, had been hugely disappointing. Indeed, over the last five years, shares in Oxford BioMedica are down around 60%.

So, while very recent performance has been strong, Oxford BioMedica remains a high-risk, unprofitable company that is more reliant upon market sentiment to push shares higher than it is on fundamental valuations.

Certainly, market sentiment could continue to improve over the short term, as investors continue to digest what is undoubtedly a hugely significant deal for the company. However, it could be a case of ‘buy on rumour, sell on news’, as market sentiment could switch from excitement to a desire to lock in profit – especially for those investors who only recent saw their names appear on the company’s share register.

As such, Oxford BioMedica’s share price could come under pressure from sellers in the market – particularly over the short to medium term. Nevertheless, today’s news is a major step forward for the long-term future of the company.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.