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Coronavirus test maker Novacyt soars 33% again. Here’s what I’d do now

Last week I suggested taking early profits in coronavirus test maker Novacyt (LSE:NCYT) at 166p.

The AIM-listed biotech firm has come back with more news on its European-approved diagnostic test which could push shares back towards its all-time high.

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It told the market on 28 February that it had scored a pair of major deals that would bring in millions in revenue.

In the last seven days the shares have rocketed by 75%, with Friday accounting for a 33% rise alone.

No-one really knows how far and how fast Covid-19 will spread. To date it has reached 50 countries and 82,000 cases have been confirmed with over 2,800 fatalities. More than 80% of cases are mild, according to a Chinese study. But Hong Kong’s leading public health expert Professor Gabriel Leung has said that if novel coronavirus can not be effectively contained it could affect two-thirds of the world’s population.

Major deals

Rabid interest in the Anglo-French company has pushed its market cap from £88m to over £100m. The shares are now changing hands for over 155p.

There are two big updates from Novacyt here. The first is an original equipment manufacturer deal with an unnamed North American healthcare group. The second boasts the most potential profit. It’s an Asian distribution deal for its Covid-19 test which was developed by Primerdesign, its molecular diagnostics unit.

Chief executive Graham Mullin said sales would begin in March. He added that he expects revenue from the first six months of the distribution arrangement will top £2.1m.

Mullin added that the Primerdesign kit “remains among the most accurate tests available for Covid-10, as well as being stable for long distance shipping [and] designed to run on multiple molecular testing platforms.”

To 27 February, Primerdesign had sold £930,000 of its research-use-only tests, the company said.

US biggest market

Those watching the massive stock market crash in the US have pointed to comments made by Nancy Messonier,  director of the National Centre for Immunization and Respiratory Diseases.

Ultimately, we will see community spread. It’s not a question of if, but rather a question of when and how many people in this country will have a severe illness,” she said.

Comments like these have helped to spark the kind of fear and panic we have not seen since 2008’s financial crisis. Novel coronavirus is particularly difficult to trace. It is easily transmitted from person to person. It has the greatest effect on the elderly and those with pre-existing respiratory conditions.

Novacyt said it had no update yet on its approach to the US Food and Drug Administration (FDA). If the company is granted emergency use approval its coronavirus test kits would be used for clinical diagnosis across the United States. That is a huge market.

If you follow Warren Buffett’s advice, you’ll be greedy when others are fearful. As a punt, Novacyt is a reasonable option given the huge interest in detecting coronavirus.

I still can’t say that I’m buying Novacyt. This is simply because of the huge volatility in the share price. There are other far more profitable targets on my watchlist that I’m buying right now.

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Tom Rodgers has no position in 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.