Oxford Nanopore scores higher revenues and smaller losses in 2022

Oxford Nanopore reported a welcome increase in revenues and shrinking losses for 2022. However, despite growth in active customers, its revenues were inflated by one-off Covid testing revenues—the question for investors will be if it can keep up the momentum to reach forecast ‘break-even’ status in 2026.

 - Oxford Nanopore revenue leaps 49%, but questions over sustainability remain.

- The company forecasts adjusted EBITDA to break even by full year 2026.

- WisdomTree BioRevolution ETF is down 2.8% year-to-date.

Oxford Nanopore [ONT.L] reported its earnings for the year ended 31 December 2022 on Tuesday, sending its share price up 14.2%.

The UK-based gene sequencing company announced revenue of £198.6m for the year, a 49% jump from 2021’s revenue of £133.7m, and losses per share of 11p, narrowed from the previous year’s 23p per share.

The results were in line with estimates of £199m revenue made in January by the company. Oxford Nanopore also predicted further demand ahead, saying it had entered 2023 “with good momentum” and a “strong” balance sheet.

The news is a welcome relief for the Oxford Nanopore share price, which is down 18.5% year-to-date and down 9.5% over the past month. While the earnings sent shares up on the day, they were trading down as much as 7.5% by Wednesday.

Oxford Nanopore’s share price volatility has had knock-on effects, bruising investors such as investment firm IP Group, Oxford Nanopore’s largest shareholder, which reported losses of £344.5m last year.

Customer accounts climb for Oxford Nanopore 

Oxford Nanopore announced particularly strong growth for its life science research tools (LSRT). Revenues for this segment came in at £146.8m, a jump of 15.6% relative to £127m the previous year and in line with company guidance of £147m.

However, the firm’s overall rise in revenues was largely driven by an increase in non-recurring Covid-19 testing revenue of £51.8m, meaning future results may not be so positive. This result followed Oxford Nanopore’s resolution with the UK government's Department of Health and Social Care over a dispute related to its contract to supply Covid-19 testing kits.

Gordon Sanghera, founder and CEO of Oxford Nanopore, said in a statement that “2022 was another year of significant progress” for the firm, despite a challenging macroeconomic environment. “Demand for our differentiated technology continues to grow around the world and across many areas of scientific research, including human, cancer, animal, plant, pathogen and environmental genomics,” he commented. He also highlighted a 30.5% growth in active customer accounts.

Like many start-ups, the UK biotech company has yet to turn a profit. But based on its current development and commercialisation plans, the company said it was targeting “adjusted EBITDA [to] break even by full year 2026”. It highlighted its strong financial position, holding £558m in cash and equivalents.

Growth in the Americas, Europe and China also helped drive revenues upward in 2022.

Life sciences sector slated for growth 

Oxford Nanopore is at the forefront of new technology that interprets genetic code using tiny holes in membranes known as nanopores. This enables it to sequence any DNA or RNA sample “from short to ultra-long”, according to its website.

The firm went public in September 2021, raising £350m and climbing 45% on its first day, making it one of London’s biggest recent biotech launches. However, it suffered losses in 2022, and its share price currently sits 52.7% below its IPO price of 425p.

Despite ongoing challenges, the UK’s life sciences sector remains potentially ripe for investment. In 2021, foreign direct investment was valued at £1.9bn. 

The UK government recently launched a new Department for Science, Innovation and Technology, committing up to £3.5bn to drive the success of the sector. In a meeting on 15 March, UK Chancellor Jeremy Hunt said that the UK’s life sciences sector is the largest in Europe.

Funds in focus: WisdomTree BioRevolution Fund

The WisdomTree BioRevolution Fund [WDNA] offers limited exposure to Oxford Nanopore stock, which has a 0.25% weighting in the fund, and greater exposure to leading biotech names like AstraZeneca [AZN] and Merck [MRK], respectively its top and fourth-largest holdings, with weightings of 3.23% and 2.21% as of Tuesday.

The fund is down 2.8% year-to-date and down 2.6% in the past month. 

Investors looking for exposure to the wider genome sequencing and life sciences sector could invest in the Invesco Dynamic Biotechnology & Genome ETF [PBE], which holds Massachusetts-based pharmaceutical biotech Vertex [VRTX] as its top holding as of Tuesday.

PBE is down 2.3% year-to-date and down 3.4% in the past month.

Out of 10 analysts polled by Refinitiv, two rate Oxford Nanopore stock a ‘buy’, six say it will ‘outperform’, one says it is a ‘hold’ and one says it is an ‘underperform’. Of 10 analysts offering 12-month price targets, the median estimate of 400p would represent a 99% hike from its most recent close of 201p.