I am cautious before buying shares whose prices show that sharp a rise in one go. This is especially true for small-capitalisation companies (it has a market cap of £64m). The risks from investing in small caps can be higher, since they are often relatively new companies with limited track records, so I think it is essential to look at the company carefully. 

Why did the Oxford BioDynamics share price rise?

The Oxford BioDynamics share price rose on the launch of its Covid-19 severity test in the US. The test is useful in predicting the immune response to Sars-Cov-2, which is one of the coronavirus variants. It is distinct from available Covid-19 tests that can only detect infection if it exists or has existed in the past in the system. 

It uses its proprietary EpiSwitch services for this, which study epigenetic biomarkers. Epigenetics tells us how genes work in response to changes in the environment and lifestyle. 

Through its services, the company is able to assist pharmaceutical companies developing more cost effective and personalised treatment plans. 

A growing biomarkers market

It estimates that the value of the global biomarkers market to be at $24bn and growing at a compounded annual growth rate (CAGR) of 14%. This sounds promising. It has also been generating revenues for a while now, indicating some success in tapping into the market. 

Disappointing financials

The last two years have seen a decline in revenues, though. Even if we ignore 2020’s performance, considering that the pandemic set business back pretty much across the board, that still does leave us with its weakening 2019 performance.

As is often the case in companies where significant product and market development is still ongoing, it is loss-making. I am not sure how long it will take to turn around. I normally like to buy profitable stocks and, if not, their revenue growth should then be substantial. That is not the case here.

Volatile share price trends

Moreover, the latest share price increase might not be sustained either. The Oxford BioDynamics share price has a history of volatility. Its share price has also seen a broad decline over the past four years. If I have a two-to-three year investing horizon, it is a risky investment from that perspective. 

The upshot for the Oxford BioDynamics share price

Still, its launch in the US is an important development, when coronavirus variants could be the next big threat on the horizon. Considering that the pandemic is still around, the timing of the treatment could make Oxford BioDynamics a more important player in the biomarkers market than before.

Like in the case of other emerging industries’ stocks, however, I would invest only what I can afford to lose. And even then, I would wait for a more opportune time to buy when its price has declined from its current levels. 

The post The Oxford BioDynamics share price is up 30% today. Here’s what I’d do now appeared first on The Motley Fool UK.

As the name suggests, the company was started by Oxford University, as long ago as 2007, but it arrived on the stock market at the end of 2016. OBD has yet to make any money or to generate revenues large enough to cover its trading costs.

However, many investors hold shares in a firm such as OBD in the hope it will one day develop a blockbusting drug or medical treatment that can be commercialised either by direct sales or by selling the intellectual property to a bigger firm, perhaps AstraZeneca. Sometimes, licensing deals in such situations can transform a business such as Oxford Biodynamics.

OBD says on its website it’s a biotechnology company with “a proprietary epigenetic discovery platform.” The idea is to develop treatments based on the latest advances in regulatory genome architecture and “its links to clinical outcomes and patient stratification.” The company reckons its EpiSwitch biomarkers, based on chromosomal conformation signatures, “are a critical cog in personalised medicine.”

Profitless R&D firms like this almost always face a race against time to discover something that can be commercialised before the money runs out. From that point of view, I’m a little discouraged that the firm has been around for 12 years without making any profits.

What often happens with this kind of set-up is that shareholders gradually become more and more diluted as the company returns repeatedly to the market for more funds. When and if a financial breakthrough finally arrives, it can be too late to save an early shareholder’s ‘investment’.

Sound balance sheet

But the balance sheet in today’s half-year results report reveals the company has cash and equivalents of around £7.9m and fixed-term deposits of £9m. Meanwhile, the company reports an operating loss in the period of £1.7m. However, the net cash figure used in operations was ‘only’ £804k.

Assuming OBD doesn’t crank up its rate of cash burn, it could survive for around five years without raising more funds even if it fails to ramp up revenues. But the clock is ticking.

Chief executive Christian Hoyer Millar explained in today’s report the firm made “strong” operational and commercial progress in the first half of the trading year with its EpiSwitch technology platform being adopted for “prestigious” clinical trials in the US and UK. The company also entered into “promising” new collaboration agreements.   

There’s not much forward-looking visibility to be had from a company like this. Maybe one day the firm could deliver spectacular shareholder returns but, in the meantime, I think patience could be required.

However, there’s always that danger that the money could run out before revenues gain traction. That’s why I’d only put a small amount of my capital in a speculative share like OBD and balance my holding with stalwarts such as AstraZeneca.

The post I think this potential millionaire-maker stock could sit well alongside AstraZeneca appeared first on The Motley Fool UK.

Already revenue-generating

Oxford Biodynamics (LSE: OBD) does not fall into this category. Shares in Oxford first started trading on AIM at the beginning of December last year, after the company was spun-out of the University of Oxford. The company is focused on epigenetics and its technology analyses biomarkers in the blood to help pharma companies work out which patients are likely to benefit most from a particular drug. 

Oxford raised £20m through the public offering, of which £7.1m found its way to the company’s coffers, giving it working capital for the next two to three years. The cash will help the group expand its offering and break into the US market. 

Unlike other early stage biotechs, Oxford is already revenue-generating, getting its income through contracts with pharmaceutical groups. And today’s results from the group show that revenue jumped nearly 60% last year from £0.7m to £1.1m. 

Unfortunately, the group is still loss making and reported an operating loss of £2.3m for the year. After adjusting for one-off IPO costs the operating losses amounted to £1.9m, up from a loss of £1.6m the year before. 

Exciting year ahead 

After a transformational 2016, 2017 is expected to be a year of growth for Oxford. As the company looks to expand its offering, pre-tax losses are expected to rise to £4.1m for the next fiscal year,but this should lead to growth. Analysts have pencilled in revenue of £3.1m for the fiscal year ending 30 September 2018 and a pre-tax loss of £1.7m, around 60% better than the year before. 

As with all early stage biotechs, Oxford is a high-risk/high-reward investment. The company may see sales and profits explode over the next few years but it may also struggle to build the customer base required to achieve escape velocity.

Nonetheless, it seems there is demand for the company’s offering. The group recently signed a pilot development agreement with Singapore-based EpiFit, to analyse the effect of EpiFit’s fitness regimes. If successful the agreement could translate into a multi-year contract but as of yet nothing is certain. 

Still, Oxford has several years of working capital in the bank after its recent IPO, giving the group plenty of headroom to get the business up and running. 

A safer buy? 

As a small-cap company Oxford is a speculative investment — but so, to some extent, is the company’s much larger sector peer AstraZeneca (LSE: AZN).

2017 promises to be a make or break year for Astra as the company awaits the results of major clinical trials this year. The biggest one, called ‘Mystic’, involves two ground-breaking lung cancer drugs. If these tests prove that the treatments are effective, they could produce more than $6bn per annum for Astra when they enter production. 

Astra is expected to report a 6% slump in revenue and a 7% fall in profits for 2016, so the group needs some positive test results to reassure investors about its outlook. 

The bottom line 

After reporting a 60% increase in revenue Oxford Biodynamics may be a ‘buy’, but the company is a highly specualtive bet. For the risk adverse investor, Astra might be a more sensible purchase. 

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