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The UK is not taking advantage of some very favourable business conditions. This is one of the biggest complaints about the modern state of the country. We have world-leading research hubs, three of the global top 10 universities, and the ability to attract the best talent. And where has it got us? Where are our dominant tech firms? Why aren’t the FTSE 100 and FTSE 250 bursting at the seams with market-disrupting startups?
Our country’s under-representation in breakout companies makes for valid criticism. But a few do sneak past the challenging investment and regulatory hurdles and acquire that fabled ‘unicorn’ status — reaching $1bn in market cap. One example is exciting biotech firm Oxford Nanopore (LSE: ONT).
Sequencing
So, what does the company do? And is it worth investing in? The name gives much of the game away. Oxford Nanopore was spun out of Oxford University in 2005. The company uses nanopore technology to sequence DNA and RNA.
Anyone who took GCSE biology knows DNA is a long string of letters (A, T, G, and C). These can be read to derive the properties of living things.
Well, the nanopore is a handheld device that allows DNA to be sequenced (or read) quickly and easily. This genetic material reading technology has use cases in health and industry.
Among the many descriptions given in Oxford Nanopore’s investor information, the following quote struck me as an obvious example of where their sequencing devices might come in handy: “What are the differences between these tomato crops? How can we breed better varieties, that are more productive, long lasting or taste better? How can we apply this knowledge to a variety of plants from cereals to flowers?”
A buy?
Sadly, a useful product does not necessarily make a good company (or stock). A quick look at the numbers here tells a revealing story. Oxford Nanpore offered its shares at IPO at 615p. An initial flurry of activity spurred the shares up to a high of 710p before collapsing after that to a low of below a pound. Early investors have watched their holdings drop 66%.
What happened here? Well, the company has posted losses in every year since IPO and revenue has stagnated too. Without a clear path to profitability or even growing sales, an early-stage growth stock does not look like the most attractive investment to me.
The most promising outcome from here looks to be a rumoured takeover from a larger US firm (hey, I’ve heard that one before!). This rumour has propelled the shares to double since March. A premium paid in a takeover deal makes for a nice short-term bump, but as a long-term investor I think I’ll be steering clear.
