Following the outbreak of Covid-19, medical institutions, pharmaceutical companies, and even governments are realising the importance and applications of genomics – both from a diagnostic and treatment perspective.

Consequently, analyst forecasts of the already multi-billion-dollar genomics market predict immense double-digit annual growth over the next decade. 

Needless to say, that could be a very lucrative opportunity. So, let’s dive into the details about investing in genetics shares.

What are genetics stocks?

Genetics stocks occupy a small section of the biotech industry. As the name suggests, these businesses focus on developing treatments for genetic diseases by repairing or replacing the faulty genes causing the problem.

The genomics industry isn’t particularly new and has been around for decades. But due to the high costs, commercialisation has been challenging and still remains that way today. However, thanks to recent technological advancements, development costs are falling drastically while simultaneously boosting accuracy. 

Therefore, it’s no surprise that research into gene therapy has accelerated, with potentially game-changing treatments entering clinical trials both in the UK and abroad.

Genetics shares can be categorised into three segments:

• Sequencing & analysis – Companies analysing genetic data to detect defects in patients
• Testing & diagnostics – Firms using sequencing data to diagnose genetic diseases
• Gene editing – Biotech groups developing gene therapies that eliminate defects in the genome sequence

While there is some overlap in each category, firms within their respective segments often have different target markets and don’t necessarily compete with each other. However, the level of competition within each category is rising as more businesses seek to capitalise on the massive growth opportunity.

Unsurprisingly, this level of growth comes with a high volume of risk. The medical industry is highly regulated, with each test, device, and drug required to meet rigorous standards. 

Drug development is particularly notorious for its difficulty. In fact, a study by the Biotechnology Innovation Organisation showed that only 9.6% of treatments that make it to phase one clinical trials actually reach the market.

So, it’s hardly surprising that most pure-play genetics stocks are exceptionally volatile. And in some cases, the failure of a clinical trial can be a death sentence for these businesses. But all it takes is one successful treatment to potentially unlock multi-billion-dollar annual revenues.

With that in mind, let’s explore the top five UK genetics shares in order of market capitalisation.

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Top genetics shares in the UK

Oxford Nanopore Technologies

Oxford Nanopore was spun out of the University of Oxford in 2005. Since then, the business has become one of the UK’s largest genetics stocks, developing a proprietary DNA and RNA sequencing technology. It’s the first one of its kind to provide real-time data analysis and rapid testing.

This technology has been embedded into a variety of devices which the group primarily sells to scientific researchers involved with clinical trials. However, management has also been broadening its horizon, targeting several applied markets. 

The list includes consumer healthcare with its Covid-19 rapid testing solution, agriculture by identifying superior plant genomes, and even the environment by analysing the microbial composition of glaciers.

Key metrics:

• Market cap: £2.24bn
• Average daily volume: 1.86m
• HQ: Oxford, UK
• Cash/debt: £618m/£25m

Genus

Genus is a world-leading genetics sequencing business that focuses on the animal agriculture industry. The company owns directly (and indirectly through partnerships) various herds of pigs and cattle. Using its sequencing technology, the group tests and identifies key desirable traits among the herd, such as feed efficiency, disease immunity, protein and fat content, and fertility.

Management then generates revenue by selecting the animals with the strongest genetic profile for breading with farmers’ herds. The end result is healthier offspring, lowering costs for farmers while simultaneously increasing the quality of the end product for consumers.

Key metrics:

• Market cap: £1.58bn
• Average daily volume: 110.44k
• HQ: Basingstoke, UK
• Cash/debt: £46m/£152m

Ergomed

Ergomed is a global contract research organisation (CRO) that works directly in partnership with drug developers. Running clinical trials is challenging, and pharmaceutical giants often turn to CROs like Ergomed for their expertise.

This genetics stock doesn’t own any proprietary technology within the genetic editing space. However, it does have a long track record of providing support services for cell and gene therapy clinical trials in oncology (cancer) research.

The group charges its customers on an ongoing basis. With more genetics shares entering the arena, demand for its services has been steadily climbing over the years.

Key metrics:

• Market cap: £540.62m
• Average daily volume: 85.93k 
• HQ: Guildford, UK
• Cash/debt: £31m/£2.68m

Oxford Biomedica

Oxford Biomedica is a rising gene and cell therapy business specialising in viral vectors. In oversimplified terms, the company re-engineers existing viruses to deliver improved genetic material into patients’ cells.

Management is using this technology to develop its own treatments. However, management also outsources its capabilities to other drug developers via its LentiVector platform. 

This drastically reduces the cost of developing gene and cell therapies. So, it’s not surprising that pharmaceutical titans like Bristol Myers Squibb, AstraZeneca, and Novartis are all active customers. These customers pay ongoing milestone fees throughout development, as well as a royalty on sales for any drug that makes it to market. However, it’s worth noting that most of the current drug pipeline using LentiVector remains relatively early stage.

Key metrics:

• Market cap: £504.34m
• Average daily volume: 302.69k
• HQ: Oxford, UK
• Cash/debt: £109m/£9.34m

ReNeuron Group

ReNeuron is a specialist in stem cell therapy. Using its proprietary Exosome Technology platform, the company can deliver payloads of critical proteins such as siRNA, mRNA, and genetic materials to patients.

The technology has proven to be quite promising. However, unlike its peer genetic stocks, this business remains firmly in the early-stage portion of its lifecycle. Today, ReNeuron has two flagship assets, both in phase two clinical trials. One is for treating retinitis pigmentosa, a progressive disease that leads to blindness. And the other is for repairing damage after a stroke.

Key metrics:

• Market cap: £21.68m
• Average daily volume: 44.12k
• HQ: Bridgend, UK
• Cash/debt: £22m/£0.72m

Investing in the US genetics industry

American genetics stocks have to navigate an equally complex regulatory environment. In the UK, all medical treatments and tests need to be approved by the Medicines & Healthcare Regulatory Agency (MHRA). In the US, approval is required by the Food & Drug Administration (FDA).

The US stock market has plenty of genetics shares listed. So, let’s explore some of the leading businesses in this space in order of market capitalisation.

1. Illumina (NASDAQ:ILMN)
2. CRISPR Therapeutics (NASDAQ:CRSP)
3. Fulgent Genetics (NASDAQ:FLGT)
4. Pacific Biosciences of California (NASDAQ:PACB)
5. Editas Medicine (NASDAQ:EDIT)

Are genetics stocks right for you?

The world of genetics stocks is a highly volatile place. Just looking at these five UK genetics shares demonstrates that perfectly. 

Over the last five years, some have achieved tremendous growth. For example, Ergomed and Oxford Biomedica are up 434% and 110%, respectively. Sadly the same can’t be said for Oxford Nanopore and ReNeuron Group, which are down 55% and 82% across the same period. And shrinking the range down to the last six months reveals double-digit declines for all five companies. What’s more, a similar story exists when looking across the pond.

Needless to say, individuals thinking about investing in genetics stocks need to have a high risk tolerance. While genetic research may have been around for decades, the same can’t be said for most of the stocks listed today. And odds are most will fail in their quest to capture the multi-billion-dollar market opportunity.

That’s why we recommend taking a diversified approach. By owning a basket of companies in this area, the odds of finding the future industry leader climb higher.

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Disclosure

Zaven Boyrazian owns shares in Oxford Biomedica. Zaven Boyrazian’s mother is an employee of Bristol Myers Squibb involved with clinical trials.

In fact, some scientists have described biotech as the future of medicine. And consequently, analyst forecasts predict the biotech sector alone will grow by an annualised rate of 15.8% until 2028, reaching $2.4trn! That’s more than three times bigger than the current $752m market size.

Needless to say, this presents a massive growth opportunity for those willing to invest in biotech stocks. But this growth doesn’t come without its risks. So, let’s explore exactly how these businesses work and the threats a biotech investor needs to know about.

What are biotech stocks?

Biotech stocks are a small but rapidly expanding segment of the healthcare industry. These businesses operate similarly to pharmaceutical companies. They both research new treatments and medicines for diseases, run clinical trials to prove efficacy and safety, and then eventually bring their product to market after regulatory approval.

However, the key differential in biotechnology is the approach to developing new treatments. Traditional pharmaceuticals use chemicals as the basis for new drugs, whereas biotech uses living organisms such as bacteria and enzymes. As crazy as that sounds, it’s opening many new avenues and solutions for treating genetic diseases and developing highly effective vaccines.

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The development pipeline for biotech stocks

The drug development pipeline for biotech stocks has five steps:

1. Discovery

Scientists identify a potential drug candidate for treating a specific disease. Typically, firms prioritise treatments with ample market opportunities and little competition on the market or in development.

2. Preclinical trials

Once a candidate is selected, non-human lab testing begins. This can be done using in vitro (in test tubes) and/or in vivo (in animals such as mice) testing. 

3. Clinical trials

If preclinical trials show encouraging results, human trials begin with qualifying patients recruited from hospitals and other medical institutions. This is the longest part of the process and where most drugs fail. 

• Phase 1 – Initial small-scale study where, on average, 60 closely-monitored patients receive different doses. The goal is to determine the highest effective dosage that does not cause severe side effects.
  
• Phase 2 – Assuming Phase 1 is successful, Phase 2 expands the study to around 120 patients. The goal is to uncover evidence of the drug candidate actually working while simultaneously isolating the optimal dose.
  
• Phase 3 – This is the longest part of the clinical trial process and can take years to complete. The goal is to prove the effectiveness of the treatment compared to existing drugs. Studies are expanded to include an average of 600 patients. However, patient numbers can venture into the thousands depending on the drug. Phase 3 trials are most commonly run as randomised, double-blind studies. Some patients receive an existing drug and/or a placebo, while other patients receive the new treatment being tested. 

4. Regulatory approval

If Phase 3 trials reveal strong evidence of high efficacy and safety, biotech stocks then file for approval from drug regulators such as the MHRA in the UK and FDA in the US. This process can take anywhere between 6 and 10 months and may require the company to perform further clinical trials if insufficient evidence is provided. If the regulator grants approval, the firm can offer its product on the open market and begin Phase 4 trials.

• Phase 4 – Drugs with regulatory approval still need to be monitored when offered to patients. The goal is to determine whether any long-term health impact occurs that would not have been detected during Phase 3 trials.

5. Commercialisation

After regulatory approval is granted, biotech groups still need to convince doctors and health insurance companies to offer the new drug to patients. This is where sales representatives come into the picture. And dethroning an existing treatment even if it’s not as effective can be a challenge.

This product pipeline can span decades. And statistically speaking, over 90% of drug candidates never make it to market. That’s why most biotech shares develop multiple drugs at the same time. Like prudent investors, these companies are diversifying their investments.

But running multiple trials at the same time is a highly capital-intensive process. Consequently, most young biotech businesses have to continuously issue new shares to raise the necessary funds. This causes significant equity dilution. It’s also common to see larger players acquiring younger companies when a drug candidate shows a lot of promise.

Top biotech shares in the UK

Here are the top biotech stocks on the London Stock Exchange in order of market capitalisation:

AstraZeneca

AstraZeneca is one of the largest pharmaceutical companies and healthcare stocks in the world. Given its access to vast resources, the group develops new treatments for a wide range of diseases. The list includes cancer, cardiovascular, renal, respiratory, immunology and other rarer conditions. 

The company already has a diverse portfolio of products on the market and its vaccine against Covid-19 made it a household name. Looking at the current project pipeline, AstraZeneca is researching 183 drug candidates, with 16 in late-stage development and two under regulatory review.

Key Metrics:

• Market Cap: £156.3bn
• Average Daily Volume: 2.33m
• HQ: Cambridge, UK
• Cash/Debt: $6,398m/$30,781m
  

GlaxoSmithKline

GlaxoSmithKline is a global leader in vaccines and pharmaceutical treatments targeting cancer, HIV, immuno-inflammatory, and respiratory diseases. The company has established research teams and manufacturing facilities worldwide, providing a global distribution network, particularly across the US, Europe, and Asia.

With over 1,500 active partnerships with external pharmaceutical organisations and governments, GlaxoSmithKline stands out among the crowd of healthcare stocks. It’s worth noting that the group also has a consumer healthcare division for over-the-counter products. However, Glaxo is in the process of spinning this off into a standalone entity, enabling the group to become entirely focused on developing new treatments. 

Key Metrics:

• Market cap: £88.5bn
• Average daily volume: 9.02m
• HQ: Brentford, UK
• Cash/debt: £4,335m/£24,173m
  

PureTech Health

PureTech Health is a mid-stage biotech business with a focus on creating new therapies for diseases with limited or no existing treatment options. The firm specialises in medicines related to the brain, gut, and immune system. It has two drugs with US and European regulatory approval, along with a further 16 in clinical trials and 27 candidates being investigated.

Beyond researching and developing its own treatments, management has built up a significant equity interest in other biotech groups. In total, it has a stake in eight different companies, three of which have commercial products and a further three in the final round of clinical trials.

Key Metrics:

• Market cap: £492.9m
• Average daily volume: 267.4k
• HQ: Boston, US
• Cash/debt: £468m/£52m
  

Oxford BioMedica

Oxford Biomedica is a rising gene and cell therapy business specialising in viral vectors. In oversimplified terms, the company re-engineers existing viruses to deliver improved genetic material into patients’ cells.

Management is using this technology to develop its own treatments. However, management also outsources its capabilities to other drug developers via its LentiVector platform. 

This drastically reduces the cost of developing gene and cell therapies. So, it’s not surprising that pharmaceutical titans like Bristol Myers Squibb, AstraZeneca, and Novartis are all active customers. These customers pay ongoing milestone fees throughout development, as well as a royalty on sales for any drug that makes it to market. However, it’s worth noting that most of the current drug pipeline using LentiVector remains relatively early stage.

Key Metrics:

• Market cap: £466.9m
• Average daily volume: 223.76k
• HQ: Oxford, UK
• Cash/debt: £109m/£9.34m
  

Avacta Group

Avacta is an early-stage biotech firm specialising in the fields of diagnostics and therapeutics. Its diagnostics division created a proprietary platform called Affimer. This is a portfolio of reagent proteins that can be used to detect specific infections within a given sample. Traditionally, this process uses antibodies. However, manufacturing antibodies is a complex, time-consuming process that Affimer reagents don’t have to go through. 

On the therapeutics side of the business, the company is currently testing its flagship AVA6000 chemotherapy drug in clinical trials. This treatment is being developed with the group’s second chemical platform called pre|CISION. Unlike existing chemotherapy treatments, AVA6000 is highly targeted. As a result, fewer healthy cells are caught in the crossfire, which reduces the severity of side effects.

Key Metrics:

• Market cap: £311.4m
• Average daily volume: 1.46m 
• HQ: Wetherby, UK
• Cash/debt: £26m/£1.7m

Investing in the US biotech industry

As with pharmaceutical and healthcare companies, investing in American biotech stocks comes with the same degree of regulatory risk. All treatments need to approval from the Food & Drugs Administration (FDA) for commercialisation in the US.

The list of US biotech stocks is significantly longer than here in the UK, as the American healthcare market size is enormous by comparison. With that said, here are some of the largest biotech shares available across the pond in order of market capitalisation.

1. Regeneron Pharmaceuticals (NASDAQ:REGN)
2. Vertex Pharmaceuticals (NASDAQ:VRTX)
3. Exelixis Inc (NASDAQ:EXEL)
4. Novavax Inc (NASDAQ:NVAX)
5. Twist Bioscience Corp (NASDAQ:TWST)

Are biotech stocks right for you?

Investing in a biotech company is a high-risk move. Drug development is notoriously challenging and expensive, with most drug candidates failing to get past regulators. In fact, a failure in a clinical trial can often be a death sentence. After all, most pre-commercialisation biotech stocks rely on external financing, which isn’t easy to raise when promoting a failing product.

But, this sector has a lot to offer investors despite its high-risk nature. And an easy solution to reducing risk exposure is to only invest in the firms that already have a product on the market with a sizeable revenue stream that can help fund future developments. 

Having said that, even the largest biotech shares can still be volatile, especially when bad results emerge from ongoing clinical trials. Therefore, the biotech sector is not suitable for everyone. And taking a diversified approach is, as always, a prudent strategy when investing in biotech stocks.

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Pharma growth play

Oxford is a biotech firm that specialises in the development of gene-based medicines. It was best known for its drug development platform LentiVector. This platform provides larger pharma firms the opportunity to create new treatments efficiently. Oxford charges fees for the use of its platform and receives royalties from successful drugs created and sold. Recently, Oxford is best known for its successful and lucrative partnership with AstraZeneca to create a Covid-19 vaccine.

As I write, Oxford shares are trading for 876p. At this time last year, the shares were trading for 989p, which is a 11% dip over a 12-month period. The shares have dipped 42% from 1,592p in November to current levels. Over a five-year period, the shares have returned 22%, whereas the FTSE 250 index as a whole has returned 17%.

Why I like Oxford Biomedica

I like the share because Oxford Biomedica’s recent and historic performance has been excellent, although I do understand that is not a guarantee of future performance. I use it as a gauge for determining investment viability. Looking back, I can see revenue and operating profit have increased in 2019 and 2020. With the vaccine rollout set to continue, and other deals in the pipeline, I would estimate 2021 figures could continue its performance growth streak of recent years. More recently, interim results, released in September for the first six months of 2021, were excellent. Revenue alone increased by 139% compared to the same period last year. This was primarily driven by the Covid-19 vaccine and demand levels being high.

I particularly like Oxford Biomedica’s business model which should keep revenue coming in. I mentioned earlier it generates income from platform fees and royalties from sales, which offers it some protection. For example, even if the drug developed by the larger pharma firm using the Oxford platform doesn’t make it to market, Oxford still made money from platform development fees.

Finally, Oxford is investing in its business and in 2020 opened a large new state of the art production site. This has helped it increase its ability to take on new projects and should help it increase performance and in turn, returns.

FTSE 250 stocks have risks

Pharma and drug development is a very competitive market. Although a lucrative market, every firm out there is looking to create, market, and sell the next big drug or treatment. This could affect Oxford’s performance if it were beaten by another firm involved in creating a new cutting-edge treatment. In addition to this, regulatory requirements in pharma are strict and ever changing. This could hinder its projects, as well as sales of any treatments. Royalties could be affected, meaning performance and financials could suffer.

Overall I am bullish on Oxford Biomedica shares right now and would add them to my holdings at current levels. I like its business model, as well as recent and historic performance. Analysts also believe the shares could reach as high as 2,000p! Of course, analysts’ forecasts may not always come to fruition. I believe the FTSE 250 incumbent is primed for long-term growth ahead.

But not all stocks have had a great run recently. One in my portfolio has been hit particularly hard since the start of the new year. Yet despite this recent downward trajectory, I believe the company could be set for an explosive future over the long term. Let’s explore.

A rising star in the biotech sector

The biotechnology industry is renowned for its high-risk profile. Yet Oxford BioMedica (LSE:OXB) continues to impress me. At the core of this business lies the LentiVector drug development platform. Simply put, it enables large pharmaceutical companies like Novartis and Bristol Myers Squibb to develop new treatments at a lower cost.

The company generates income in the short-term through platform fees based on production milestones. But over the long term, if a drug developed on this platform makes it to market, Oxford BioMedica will receive royalties on each sale.

Only two drugs have made it to market so far, Kymriah, a treatment for blood cancer, and AstraZeneca‘s Covid-19 vaccine. But with 24 other drugs in development, the long-term potential for this biotech stock is enormous, in my opinion.

Over the last five years, revenue has grown by an average of 36% annually. And as forecasts for the gene therapy industry continue to rise, the stock of this UK biotech business has surged over 400% since 2017.

With a brand-new production-ready facility completed in 2020, the group’s capacity to take on new projects has drastically increased. And since management has already built a list of nine top-tier clients, finding these new projects should be relatively easy, in my opinion.

Taking a step back

As exciting as the growth prospects of this business may be, there are some notable risks to consider. The most prominent is the regulatory environment. Drug development is a long and arduous journey that often ends in failure. Even if a drug can make it past the regulators, its financial viability is not necessarily guaranteed.

To some extent, Oxford BioMedica is protected from this risk. After all, the company generates revenue throughout development even if a treatment eventually fails. However, if a drug doesn’t make it to market, the potential royalty income is lost, and that could cause long-term growth to stagnate.

Needless to say, a UK growth stock with wobbly growth prospects is prone to substantial volatility.

Can this UK stock double my money?

Looking at the latest half-year results, revenue for the first six months of 2021 grew by 139%, thanks to the high demand for AstraZeneca’s Covid-19 vaccine. When the pandemic ends, income from the vaccine will undoubtedly fall. But improved profit margins and newly enlisted clients, like Arcellx and Cabaletta Bio, could fill this future income void.

It seems other analysts agree with my bullish stance, with price forecasts for this UK stock at 2,400p. Compared to today’s price of 1,000p, that’s a potential gain of 140%. This is by no means guaranteed. But it does support my belief that the Oxford BioMedica share price can double in 2022. Therefore, despite the risks, I am considering adding more shares to my portfolio this year.

The latest bullish sentiment appears to stem from record first-half results released in September, which showed a surge in earnings. A 139% rise in revenue, to £81.3m, led to an operating profit of £19.7m, from £5.8m a year previously.

On an EBITDA basis, it’s even more impressive. The half brought in a figure of £27.1m, from an EBITDA loss of £0.4m in H1 2020. My Motley Fool colleague Zaven Boyrazian has dug more deeply into the results, so I won’t repeat them here. I just want to look at the bigger investment picture.

Oxford Biomedica specialises in gene-based biotechnology. And its key technological development is its LentiVector drug development platform. That’s used by pharmaceuticals companies for R&D, including big names like Novartis and AstraZeneca.

Oxford Biomedica strikes me as something of a picks and shovels investment. You know, when there’s a gold rush, those selling the digging tools make their money whoever finds the shiny stuff. It’s perhaps not quite like that here, but I do see something similar.

Biotechnology platform

The LentiVector financial model renders things a little differently from straight picks and shovels sales. Customers pay an initial licence fee. And then further cash comes from royalties should the drugs being developed turn into commercial successes. That makes for a nice potential long-term income stream. But much of it will come from the successful users of the technology.

So where are the current big profits coming from? Oxford Biomedica has also been doing some manufacturing, of AstraZenenca’s Covid-19 vaccine, and that contributed strongly to those first-half profits.

It does create some concern for me over the Oxford Biomedica share price strength. Those H1 results show revenue from licences, milestones and royalties of just £5.7m, down from £10.6m. That’s only a small fraction of total revenue. The Covid vaccine deal will probably keep the cash coming for some time yet. But it’s going to wind down eventually, surely.

Oxford Biomedica share price valuation

If the current valuation is driven by those vaccine profits, I can see a risk of price falls when that happens. So what does the valuation look like? Well, simply doubling up first-half EPS, and going on the current Oxford Biomedica share price, I get a forward P/E of around 35.

The company says it expects EBITDA in the second half to be below the H1 figure, due to “an increase in research and development, administrative and bioprocessing costs“. So the real forward P/E should be higher than my guess. I even see some forecasts suggesting around twice that valuation, with a P/E of close to 70.

A company in transition

Right now, Oxford Biomedica is in something of a transitional phase. It currently has its manufacturing capacity to bring in the shorter-term cash. And I can see further opportunities there. But long term, it’s surely all about the LentiVector technology and its licensing progress and royalty income.

On balance, I see attractive potential here, but with a fair helping of risk. I’ll keep watching, in the hope of better buying opportunities in the future.

The rising Oxford Biomedica share price

I’ve previously explored this business. But as a quick reminder, Oxford BioMedica is a young biotech firm that created a drug development platform called LentiVector. This has proven to be an essential solution for the more prominent drug developers like Novartis and AstraZeneca. The latter of which also struck a deal to hand its Covid-19 vaccine manufacturing responsibilities to this company.

This manufacturing deal is largely responsible for the rapid rise in Oxford BioMedica’s share price – something I predicted back in November last year. And looking at the latest results, it’s clear to see why. Total revenue is up 139%, reaching £81.3m versus £34m over the same period in 2020.

£75.6m of the total revenue stream originated from its bioprocessing and commercial development division. This includes all the income generated through its partnerships with larger pharmaceutical companies, including AstraZeneca. The rest came from royalties and license fees. However, cash flow in this segment remains fairly volatile. And will likely stay that way until more drugs developed using LentiVector reach the market.

Overall, this explosive revenue growth has led to the company entering the black, with operating profits coming in at £19.7m versus a £5.8m loss last year. However, as impressive as this latest performance has been, there are some brewing concerns in my mind.

The risks that lie ahead

My original and ongoing investment thesis for this business surrounds its LentiVector platform. Clients pay an initial licence fee along with additional royalties should a developed drug eventually make it to the market. This makes it a long-term source of recurring income.

So, I’m disappointed to see that Sanofi is terminating its collaboration and licence agreement with Oxford BioMedica for its haemophilia treatment. The management team expects the impact on revenues over the next 24 months to be negligible. However, it begs the question of whether LentiVector is living up to expectations.

For now, its agreements with other pharmaceutical companies, including its recent collaboration with Bristol Myers Squibb, remain in place. Still, this is something I will be watching closely. Suppose its other partnerships start to crumble? In that case, the Oxford BioMedica share price could do the same.

The bottom line

Overall, my opinions of this business is unchanged. These latest results are quite encouraging. And if the firm can continue to maintain its growth, I wouldn’t be surprised to see the Oxford BioMedica share price climb higher over the long term.

Having said that, I must admit, the stock is starting to look quite expensive. With a price-to-earnings ratio of over 70, the slightest hint of trouble, such as another lost partnership, would likely lead to a significant amount of volatility. With that in mind, I won’t be buying more shares today as I think there are cheaper opportunities to be found elsewhere.

It is not that hard to argue that Oxford Biomedica’s share price surge is justified. Group revenues rose 139% to £81.3m in the six months to June, helping the company report its first interim operating profit (£19.7m) since 2018. Cash generated from operations was £22.2m and, after £3.5m of capital expenditure, net cash inflows were £18.7m, compared to a £3.7m outflow in the comparable period of the prior year.

Perhaps more important is the fact that the Astra contract has given the company the platform to broadcast the efficiencies of its LentiVector technology on a global scale. The LentiVector uses virus particles to deliver advanced genetic therapies directly into human cells, which is hugely advantageous in complex medicines. Partners such as Swiss group Novartis and US giant Bristol Myers Squibb have used the platform as a tool to help develop novel gene and cell therapies. Others, like AstraZeneca, use it for the ongoing manufacture of medicines. The company has three manufacturing sites in Oxford, including the brand-new 84,000 square foot centre Oxbox, which is still under development.

But therein lies the first problem with Oxford Biomedica’s Astra deal. The vaccine is taking up a huge proportion of the company’s current manufacturing capacity, meaning there is little room to pursue other deals. Indeed, while the exact contribution of the Astra vaccine deal was not reported in first-half numbers, it is fair to assume that revenues from the deal contributed significantly to the £81.3m of group sales, which were up from £34m in the first half of 2020.

Bioprocessing sales (which includes the Astra contract) rose by more than 200%, but revenues from the drug development side of the business fell by 47% to £5.7m as none of the projects currently being undertaken alongside partners generated any significant development milestones or royalty revenue. The company’s LentiVector platform does have a strong pipeline of projects but only two of these are anywhere near commercial approval. Until a medicine gains the green light from the regulators, there is no certainty of long-term revenue generation.

Set aside the Astra deal and the company’s bioprocessing divisions isn’t exactly thriving either. In the first half of the year the group’s bioprocessing programmes with Orchard Therapeutics came to an end, while French partner Sanofi abandoned its haemophilia project and backed out of its contract with Oxford Biomedica. No new bioprocessing deals were signed in the period.

And while none of this would be a problem if the Astra deal was going to keep delivering, the contract is only expected to last three years, at which point Astra will vacate the three suites it is currently using. If Oxford Biomedica hasn’t found new contracts to fill the gap by then, its revenue generation will be very disappointing.

The deal has also been expensive to fulfil, deferring expenditure away from the company’s already uninspiring level of investment in research and development. In the last five years R&D expenditure has risen by just £5m to £29.4m in 2020. That reflects the lack of progress in the development of the group’s own medicines, all of which remain in the pre-clinical stage of testing and are therefore a long way from commercial success.

This isn’t the first time Oxford Biomedica has been tempted by large, short-term financial reward at a cost to long-term development. In 2015 management took out an expensive loan to develop a manufacturing site capable of coping with Novartis’ genetic cancer drug Kymriah. Although Oxford Biomedica remains the sole manufacturer of Kymriah and its owner Novartis has generated peak annual revenues of $474m (in 2020), the drug has never contributed particularly strong sales for Oxford Biomedica. Over five years the company is entitled to a minimum of $75m. For five years between 2015 and 2020, the interest paid on the loan taken to extend the manufacturing facilities cost the company £27.2m.

Oxford Biomedica’s balance sheet is now clean thanks to a £53m equity raise from Novo Holdings in 2019. As of June 2021, the company was sitting on £61m of cash, compared to £46.7m at the end of 2020. The company has also raised a further £50m from new investor Serum Life Sciences, which will own 3.9% of the enlarged company once the fundraising is completed.

It’s a strong endorsement and the money will help Oxford Biomedica complete the development of its Oxbox site, hopefully allowing it to avoid taking out another painful loan. But what will fill the site if the company hasn’t invested enough in new deals? And will any of the partnerships currently in the works be capable of replicating the revenue generated from an internationally distributed vaccine? I’m not confident.

It is also hard to shake the feeling that the Oxbox site was primarily chosen by AstraZeneca and its partners at Oxford University for its location. That’s not enough to justify Oxford Biomedica’s share price surge of the last year, and so the shares are not currently on my watchlist.

Zaven Boyrazian: Oxford Biomedica

Oxford Biomedica (LSE:OXB) is a biotech company that established a proprietary drug development platform called LentiVector. Using this technology, larger pharmaceutical companies like Bristol Myers Squibb and Novartis can pursue new treatments that would otherwise be  considered too expensive or technically challenging.

More recently, it has been put in charge of producing AstraZeneca’s Covid-19 vaccine. Earlier this month, the contract was expanded, roughly doubling the expected income in the process.

The contract alone could be worth £100m, potentially doubling the firm’s revenue stream. However, with a large bulk of income originating from a single source, there’s always the risk of revenue being compromised in the future. But Personally, I think the potential returns are worth the risk.

Zaven Boyrazian owns shares in Oxford Biomedica. His mother is an employee involved with clinical trials for Bristol Myers Squibb.

Rupert Hargreaves: TI Fluid Systems

TI Fluid Systems (LSE: TIFS) manufactures fluid storage, carrying, delivery and thermal management systems for light vehicles. The pandemic has impacted its sales, but the business is now well on the way to recovery.

Revenues increased 14.2% in constant currency during the first quarter of 2021. Based on this growth, management is expecting free cash flow to return to pre-covid levels this year.

Of course, this is not guaranteed. Another economic slowdown or decline in vehicle production could hurt demand for the company’s products. Still, I would buy the stock as a way to invest in the global economic recovery in the months ahead.

Rupert Hargreaves does not own shares in TI Fluid Systems.

Edward Sheldon: Smith & Nephew

My top stock for July is Smith & Nephew (LSE: SN). It’s a medical technology company that specialises in joint replacement systems.

I’m bullish on Smith & Nephew for two main reasons. The first is that the stock is a ‘reopening’ play. This year, profits should get a boost as elective medical procedures are resumed.

The second reason I like SN is that the company is well placed to benefit from the world’s ageing population. An increase in the number of over-60s globally in the years ahead should boost demand for its products.

Smith & Nephew’s valuation is higher than that of the average FTSE 100 stock. This is a risk to consider. Overall, however, the stock’s risk/reward profile is attractive, in my view.

Edward Sheldon owns shares in Smith & Nephew

Paul Summers: Motorpoint Group

Car retailer Motorpoint (LSE: MOTR) could prove a lucrative medium-term hold. Trading has accelerated in recent months as branches have reopened and UK drivers have been spending their lockdown savings. A global shortage of semi-conductors for new vehicles should support this demand for nearly new cars for a while. 

The shares already hit a record high in June, perhaps in preparation for good news. Still, a forecast P/E of 22 (at the time of writing) isn’t too steep in my opinion. Motorpoint generates consistently superb returns on the money invested in the business – something I always look for. 

Paul Summers has no position in Motorpoint Group

Kirsteen Mackay: Tesco 

I think FTSE 100 stock Tesco (LSE:TSCO) is one to watch in July. With Morrisons rejecting a takeover bid, I think it shines a spotlight on supermarket stocks. Tesco offers a 4% dividend yield, a forward price-to-earnings ratio of 12.6 and its share price is at the low end of analyst expectations.  

Tesco’s Q1 earnings show signs of growth. Group retail sales came in at £13.3m, this was up 8.1% on a 2-year-period and 1-year up 1%. Tesco does have a high level of debt. But I think it has staying power thanks to its extensive consumer data generated by its Clubcard. 

Kirsteen Mackay has no position in Tesco.

Christopher Ruane:  S4 Capital

I remain bullish about S4 Capital (LSE: SFOR), the digital advertising agency network.

Early in June, the company chairman hinted that it would reveal news of a couple of acquisitions later in July. The company is highly acquisitive and such announcements tend to attract investor attention. On top of its increased growth forecasts for the year, I think that could provide a July boost to the S4 Capital share price.

Acquisitions cost, though, and there is a risk of share dilutions to help fund the purchases.

Christopher Ruane owns shares in S4 Capital.

Royston Wild: MJ Gleeson 

The British housing market remains in rude health despite the Covid-19 crisis. And this has led to sharp price increases for UK housebuilding shares. Take MJ Gleeson (LSE: GLE) for instance. This small cap has risen an impressive 29% in value during the past 12 months. 

Yet at current prices I think MJ Gleeson’s share price remains mightily cheap. It commands a forward price-to-earnings growth (PEG) ratio of 0.8, below the bargain-basement benchmark of 1. I think the release of fresh financials on 9 July remind the market of its terrific profits outlook and prompt fresh buying interest from value seekers. Last time it updated the market in May MJ Gleeson predicted that earnings for the full year would be ahead of market expectations thanks to “strong demand for new homes.” 

Royston Wild does not own shares in MJ Gleeson.

Roland Head: Airtel Africa

I’ve chosen African mobile operator and payments group Airtel Africa (LSE: AAF) as my top stock for July. This FTSE 250 firm recently reported 25% profit growth for the year to 31 March, but still offers a 5% dividend yield.

I’m excited by the long-term growth potential of the company’s African markets, which I think should outperform the mature telecoms markets of western Europe and the US.

Although I think that investing in Africa carries some extra political and operational risks, I reckon Airtel Africa shares are cheap enough to reflect this. I’ve recently bought the stock for my portfolio.

Roland Head owns shares of Airtel Africa

Kevin Godbold: Britvic

Branded soft drinks company Britvic (LSE: BVIC) delivered a positive outlook statement in May. The firm saw “encouraging” sales in the second half to 31 March because of the easing of lockdowns. And the directors are increasing re-investment into the business to “capitalise on near-term market opportunities and drive long-term growth.”

Britvic scores well against quality indicators. And trading is improving. Although a positive investment outcome isn’t certain, I’m tempted to buy the stock for July and beyond despite the full-looking valuation. Near 943p, the forward-looking earnings multiple is just above 16 for the trading year to September 2022.

Kevin Godbold does not own shares in Britvic.

Nadia Yaqub: BT

I’ve recently turned bullish on BT (LSE: BT-A). A few weeks ago, the company announced that billionaire, Patrick Drahi through his firm, Altice took a 12% stake. This investor has a wealth of experience and I reckon it could be a turning point for BT.

But the UK firm isn’t without its problems. It has a significant amount of debt and a sizeable pension deficit. For me, the main thing is that it has a plan. BT has stated that it remains on track for a zero funding deficit by 2030. I reckon things look promising for the company.

Nadia Yaqub does not own shares in BT

G A Chester: Fresnillo 

A share-price decline of 27% makes silver and gold miner Fresnillo (LSE: FRES) the FTSE 100’s worst performer so far this year. It’s also in the red on a one-year view. Volatile precious metals prices and operational risk come with the territory, but I think the stock currently offers me a margin of safety and great value. 

Analysts are forecasting earnings growth of 80% for 2021 and a 40% dividend increase. A P/E of 14 is low by the company’s historical standards, a PEG of 0.2 is in the bargain basement, and a historically high dividend yield of 3.2% adds to the appeal for me. 

G A Chester has no position in Fresnillo.

Tom Rodgers: Rolls-Royce

News that FTSE 100-listed engine manufacturer and defence contractor Rolls-Royce (LSE:RR) is selling off its Spanish subsidiary ITP Aero for around €1.5bn gives me confidence that this British brand can climb in July. That would give it the ability to pay down its admittedly huge debt pile and brighten its future prospects. The value on offer at these prices has also attracted broker Berenberg to forecast a near 50% target increase from here, and that’s the kind of re-rate that shows institutional confidence is returning for Rolls-Royce after an horrific couple of years.    

Tom Rodgers does not currently own shares in Rolls-Royce

Jonathan Smith: Aviva

Aviva (LSE:AV) is a well-known insurance provider. I like the fact that it’s transforming focus of business and putting more focus into the core UK operations. This was seen recently with the agreement to sell off Aviva France for €3.2bn.

This also helps to boost the cash position of the business, which should support future dividend payments. The current dividend yield of 5.06% looks attractive for income investors.

The Q1 update also highlighted the highest Q1 sales in the general insurance division for a decade. With this backdrop, Aviva is my top stock for July.

Jonathan Smith does not own shares in Aviva.

Andy Ross: ITV 

Shares in broadcaster ITV (LSE: ITV) could do well in July in the run up to its 2021 interim results, due out on the 28^th July.

Back in May, the broadcaster sounded relatively upbeat. ITV Studios revenue was recovering, a key driver of growth, as was advertising revenue.  

Content such as Saturday Night Takeaway and Six Nations rugby modestly boosted viewing numbers. I’m hoping the European Football Championships continues that trend.  

Further optimism from ITV executives when the results come out could I think really help the share price. However, of course there’s a risk the update could miss expectations or have a negative outlook, which would likely send the share price down.  

Andy Ross does not own shares in ITV.

Harshil Patel: Synthomer 

My top stock for July is chemicals company Synthomer (LSE:SYNT). It supplies polymers to several markets including carpets, and coatings.  

The company is experiencing strong trading momentum across all of its business areas. It recently highlighted a positive outlook and I think strong trading is likely to continue this year.  

Although uncertainty remains in the global economy, I believe Synthomer offers a reasonable margin of safety. 

Overall, I’d say the stock is pretty cheap. It trades at a price-to-earnings ratio of 10 and offers decent earnings growth. It has plenty of cash and even offers a dividend of over 3%.   

Harshil Patel does not own shares in Synthomer.

This deal seems to have been one of the primary drivers behind Oxford Biomedica’s rapidly rising share price in 2020 that helped push it from 673p to 1,000p by the end of the year. This growth has continued since, and over the last 12 months, the stock is up more than 60%. But is this momentum about to accelerate?

Guidance gets vaccinated

I’ve previously explored Oxford Biomedica and its partnership with AstraZeneca. But as a quick reminder, the company is a small biotech group that has developed a proprietary drug development platform called LentiVector. This technology is ultimately what landed it with an 18-month vaccine manufacturing deal with AstraZeneca as it significantly reduces the hefty development costs of new medicines.

The original contract was expected to generate around £50m of additional revenue for the business. However, last month, the management team made an announcement that saw the Oxford Biomedica share price jump by double-digits within a day. Following the successful production achievements so far, AstraZeneca has agreed to increase the number of vaccine batches that Oxford Biomedica must deliver in the second half of 2021. In other words, the order sizes, and therefore income, from this deal just increased.

It’s not clear as to the exact value of the income this newly reformed agreement will generate. However, revenue guidance was raised from £50m to over £100m from this contract alone. Combining this with the income being generated from the vast collection of other products being developed on LentiVector, I believe 2021 will be a transformative year for Oxford Biomedica and its share price.

The Oxford Biomedica share price has its risks

As promising as this progress is, there are still several risks that this business faces. The most prominent of which is long-term revenue generation. The deal signed with AstraZeneca has a maximum term period of three years. In other words, it may not be a sustainable source of long-term income. This is particularly troubling given how dominant this partnership has become in the overall revenue stream for Oxford Biomedica.

The cash flows generated from this deal certainly provide a large amount of capital for reinvestment. Improvements to LentiVector may, in turn, attract additional customers that can replace the eventual loss of revenue. However, whether this can be achieved before its vaccine contract expires remains to be seen.

Needless to say, if investors see a sudden decline in Oxford Biomedica’s gross income, then I think the share price could begin to experience some significant volatility. After all, it looks like a lot of the firm’s valuation is being driven by future expectations.

The bottom line

I’ve been an investor in Oxford Biomedica for several years now. My original investment thesis surrounded the potential of the LentiVector platform. Personally, I still believe that potential remains substantial, even after the AstraZeneca contract expires. Therefore, despite the risks, I’m cautiously optimistic that the Oxford Biomedica share price will continue to climb over the long term.

At £11.14 per share, Oxford Biomedica was up 11% during Tuesday’s session. The FTSE 250 healthcare giant touched record highs around £11.28 earlier today, after announcing upgrades to its full-year earnings estimates.

Guidance gets a shot in the arm!

Oxford Biomedica — which manufactures the AstraZeneca coronavirus vaccine — has released a series of strong updates in recent months. And on Tuesday, it advised that the FTSE 100 firm has bumped up orders of the pandemic battler.

It said the “successful manufacture of large-scale batches” of Covid-19 vaccines meant AstraZeneca has “committed to an increase in the number of batches” in the second half of 2021. This follows on from the 18-month supply agreement both parties had signed back in September.

As a consequence, Oxford Biomedica said it was raising its revenues guidance from the AstraZeneca deal. It now predicts sales “in excess of £100m” from the Footsie firm, double its previous guidance of above £50m. It also added it expects “significant growth” in group operating earnings before interest, tax, depreciation and amortisation (EBITDA).

What Oxford Biomedica said

John Dawson, chief executive at Oxford Biomedica, said: “Everyone involved with production of the Covid-19 vaccine can be truly proud of their achievement in manufacturing batches of vaccine from our Oxbox manufacturing facility.

“We are delighted to be a key supplier of the vaccine and the group is proud to be part of this world-leading vaccination project that is saving many lives,” he added.

Finally, Oxford Biomedica reiterated its belief that it doesn’t expect its vaccine production agreement with AstraZeneca “to have any impact on the group’s current partnerships or ability to secure and support additional new partnerships in the cell and gene therapy field.”

Will profits forecasts leap?

As I say, this is the latest in a line of positive trading statements from Oxford Biomedica. Its full-year results of April showed revenues soared 37% year-on-year in 2020 to £87.7m. Consequently, the FTSE 250 firm saw pre-tax losses narrow significantly to £6.6m from £20.9m in 2019.

The business saw bioprocessing and commercial development revenues rocket 45% on an annual basis to £68.5m, it said. Trade here was helped by new contract wins with Astrazeneca, Beam Therapeutics and Bristol Myers Squibb. Meanwhile, the number of partner programmes grew from 13 in 2019 to 20 last year.

City analysts expect Oxford Biomedica to bounce back into profit in 2021. They had been predicting pre-tax profit of £6.9m this year, rising to £11m in 2022. Today’s news means these forecasts could be significantly upgraded.