A Primer on Covid-19 testing in the UK (Part 2)

The promising vaccine news from Pfizer earlier this week has been welcomed by global financial markets, but has inevitably also impacted certain segments of the market, notably Covid-19 testing stocks. Whilst the vaccine has proven that there is indeed light at the end of the tunnel, there are still a few hurdles we need to overcome before we can return to previous levels of normality.

Below is an image of how the Pfizer & BioNTech Covid-19 vaccine stacks up against traditional vaccines. As we can see, the 90% effectiveness is remarkable, given this is an entirely new vaccine design, using RNA for the very first time.

However, the vaccine will need to be stored at -80C, which complicates the logistical process of getting the doses to reach billions of people. Pfizer has also stated that it will only be able to produce 1.3 billion doses by the end of 2021, which would mean 650 million people will be vaccinated. If other vaccines are not proven to be effective, it may take several years before the global population of 7.8 billion people is vaccinated.

The full Phase 3 results data from Pfizer are also yet to be published, so we are currently unaware of how long immunity will last for, or how effective the vaccine is across different age groups. There is also the risk that the virus mutates and makes the vaccine redundant altogether, although this is unlikely.

Despite the encouraging signs emerging from Covid-19 therapeutics and vaccine developments, it may take some time for the world population to experience these benefits. Mask wearing, social distancing and mass testing is likely to remain at the forefront in our battle against Covid-19 for the foreseeable future.

In this article, we will assess some of the UK listed Covid-19 testing stocks, which include: Novacyt, Avacta, Omega Diagnostics and Genedrive. It is important to note that whilst some of these companies stand to benefit from the influx of government spending, others might ultimately fall short. As always it is essential to DYOR and tread carefully, the markets are particularly volatile in the current climate, especially Covid-19 stocks!

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Novacyt (LON:NCYT, EPA.ALNOV)

Share Price: 871p

Market cap: £619m

StockRank: 83

Test type: PCR, RT-PCR, ELISA Antibody

Novayct, through its PrimerDesign division is a world-leader in the provision of PCR testing. If you would like to read more about the company, you can read through my Stock Pitch published at the beginning of October. I have attached a link here.

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Avacta (LON:AVCT) - Biotechnology & Medical Research

Share Price: 111p

Market cap: £280m

StockRank: 13

Test type: Affimer based LFT for antigen

Business & Model

Avacta, through its two proprietary platforms: Affimer® and pre|CISIONTM has been able to develop new cancer immunotherapies by combining these two innovative products. The company has also been able to focus its efforts on creating a diagnostics, bioprocessing and research division as a result of its Affirmer reagents technology.

Through the company’s pre|CISIONTM targeted chemotherapy platform, it is able to release the drug specifically in a tumour, which acts to limit the risks of chemo destroying healthy cells in other parts of the body. Avacta plans to initiate a phase I study for its pro-doxorubicin, the first pre|CISION pro-drug for cancer immunotherapy in the first half of next year.

Source: Avacta

The Affimer technology developed by the company benefits from being able to be used in a wide range of applications. The Affimer reagents are essentially non-antibody binding proteins that can be engineered to detect a particular substance. There are a few key advantages of this approach, where antibodies have certain limitations, Affimer benefits include: Rapid Development, Engineered Specificity, Flexible Functionalisation, Ease of manufacturing and no immune systems limitations.

In April this year, Avacta announced a strategic partnership with Cytiva, formerly known as GE Healthcare Life Sciences, to develop a rapid point-of-care Affirmer based Covid-19 test for mass population screening. The company has made good progress to date, with Affimer reagents demonstrating great results in detecting the virus spike protein. The saliva-based lateral flow test using these Affimers is expected to generate accurate results within minutes.

Since April, Avacta has entered into a range of further strategic partnerships to expand the use of its proprietary Affimer reagents in Covid-19 diagnosis. The company announced a collaboration with Adeptrix in the US to develop a high throughput Covid-19 antigen test using Adeptrix’s proprietary bead-assisted mass spectrometry (BAMS™) platform. It has also announced an exclusive distribution agreement with Medusa19 for its saliva-based rapid test.

To add to this, Avacta also informed the market that a collaboration with Centre for Virus Research at the University of Glasgow had found that ‘certain Affimer reagents which bind to the SARS-CoV-2 virus spike protein prevent infection of human cells by a SARS-CoV-2 model virus, and therefore provide a potential therapy for COVID-19 infection.’

At the start of September, Avacta announced the launch of a SARS-CoV-2 ELISA Laboratory Test to detect current infection in individuals. The company stated that it will use the ELISA tests for its own clinical validation of its rapid point of care saliva based tests in addition to being manufactured for sale.

Whilst Avacta’s Affimer technology seems highly promising, it is still awaiting clinical validation of its products in the Covid-19 setting. The image below was taken from the company’s investor presentation on the 29th September, detailing the Near-term Value Drivers.

Source: Avacta

Financials & fundamentals

Although the company has been successful in growing its revenues in recent years, losses have been mounting. Revenue stood at £1.8 million for the 6 months ending June 2020 and reported losses totalled £7 million after factoring in R&D spend. It is very difficult to value the company due to the uncertainty over its future revenue streams and levels of profitability from its product range.

In the near-term a lot depends on the success of its Covid-19 Affimer reagents. This could be financially transformational for the company. In the most recent Interim Results, the company commented that ‘In the UK alone, the demand for antigen testing in the community could be as high as 100 million tests per month in the medium-term.’ However, there is no guarantee that the tests will meet the rigorous clinical standards that are expected or that the company will be able to rapidly scale up production in time to meet this demand.

Biotech companies commonly burn through cash quite quickly throughout the clinical development phase and Avacta is no exception. The company has had to make a series of equity raises over the past few years, to meet the cash flow requirements of the company. The Interim Results in September confirmed that the company had managed to raise £53.8 million over the 6 month period to 30th June 2020, which allows the company to expand its Diagnostics and Therapeutics programmes. The company ended the period with a cash balance of £54.5 million.

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Genedrive (LON:GDR) - Healthcare Providers & Services

Share Price: 60.5p

Market cap: £34m

StockRank: 4

Test type: PCR, RT-PCR

Business & Model

Genedrive® is an innovative portable PCR platform that can use a range of different sample types including plasma, sputum and buccal swabs for rapid nucleic acid amplification to generate results. The platform is optimised for high level molecular diagnostics analysis at low throughput for decentralised laboratories. The simplicity of the device is a key selling point, with no need for specialist knowledge, data interpretation or routine maintenance.

Source: Genedrive

The Genedrive platform can be used for the detection of not just infectious diseases, but also human genotyping, animal health, pathogen identification, and other applications. The Genedrive® Connect app can be downloaded to manage patient data and transmit test results. The company lists the following key features of its product:

• Affordable platform that facilitates testing in low throughput settings.
• Decentralised testing.
• Rapid results.
• Single test throughput.
• Easy to use single button operation with simple software.
• For various sample types.
• Single use consumables.

Genedrive has also developed a range of test kits that can be used on a variety of platforms. It has received CE-IVD Certification for its HCV-ID test, MT-RNR1 ID test for the detection of the single nucleotide polymorphism (SNP) and more recently its 1-step PCR beads test for SARS-CoV-2 detection. The company also provides a customised pathogen detection product called Genedrive® BioPlex, for the US military.

Genedrive’s 96 SARS-CoV-2 Kit received the CE-IVD mark in May this year. The kit is in a 96 well format for high throughput testing and can be stored in ambient temperatures. The tests have been developed to be performed in a 1-step process, as no reagent preparation is needed and results are generated in under 100 minutes. The company now sells its test in several countries outside the UK and Europe through its existing distributor network. Genedrive recently received approval in South Africa, and is waiting on applications made for the US and Indian markets.

Source: Genedrive

Moving forward, the company has announced its intention to develop a test for tuberculosis (mTB) detection and is also developing a point-of-care solution to detect SARS-CoV-2 virus in saliva, which would generate results within 15-20 minutes.

Financials & fundamentals

Revenues have fluctuated over recent years and settled towards the lower range at £2.36 million in 2019. Losses also varied over this period, reaching £3.64 million last year. In the most recent trading update published in July, the company said it expected to generate revenues of £1 million for the year to 30 June 2020.

The company did disclose in the trading update that it has received over £1.0m of indicative orders for Genedrive® 96 SARS-CoV-2 kit, which depended upon pending regulatory approvals. It also stated that ‘Further orders for the CoV-2 test are anticipated through a widened network of distributors’. The margins for these kits are around 60%, so this could be a significant profitability driver in the coming months. If the point-of-care SARS-CoV-2 test currently under development also meets the necessary requirements for approval, further revenues and profits should be expected from this.

Genedrive ended the 30 June 2020 financial year with a cash balance of £8.2 million, after an equity fundraise in May 2020.

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Omega Diagnostics (LON:ODX) - Healthcare Equipment & Supplies

Share Price: 47.5p

Market cap: £85m

StockRank: 24

Test type: LFT antibody, ELISA antibody

Business & Model

Omega Diagnostics is a medical diagnostics company, which operates through three main segments: Global Health, Food Intolerance and Covid-19.

The Global Health division is currently focused on supporting diagnostics for patients with HIV. Omega’s VISITECT® CD4 Advanced Disease lateral flow assay allows rapid testing to take place to detect individuals with HIV. The tests can be used in a decentralised setting, at the point of care, which allows for faster, more efficient and lower cost testing.

Omega Diagnostics has developed two innovative technologies for allergy detection in food. Food Detective® is a point of care test that screens for the presence of IgG antibodies in 59 common foods and provides results within 40 minutes. The FoodPrint® platform is a lab-based ELISA test, which measures food specific IgG antibodies for over 200 different foods to pick up on any immune system reaction.

Using the company’s notable antibody expertise, Omega has been able to develop and manufacture a Covid-19 point of care antibody test as part of the UK Rapid Test Consortium, on behalf of the UK government. The test, referred to as the UK-RTC AbC-19™ Rapid test, has now received its first orders from the UK Department of Health and Social Care (DHSC). Omega has also entered into a partnership with Mologic to provide manufacturing capabilities for its Covid-19 ELISA antibody diagnostics test.

Source: Abingdon Health

Through its partnership with Mologic it also agreed to sell an Omega CE marked Mologic lateral flow antibody test, under Omega's VISITECT ® brand. The antibody test differentiates itself from others by testing for three types of antibodies IgA, IgG and IgM. This means that the test can detect positive patients at an earlier stage than other antibody tests. The test was commercially launched at the start of October.

The company has also noted the need for a point of care antigen rapid test for Covid-19. It is working with Mologic through its material transfer agreement that it signed in June this year, to potentially manufacture their lateral flow antigen test. The company made the following comment with regard to these developments, “Mologic is currently evaluating a prototype in a number of healthcare settings and the results to date look promising. If this continues, then by the end of November, Omega would look to commence technical transfer of the test prior to commencing manufacturing.”

Financials & fundamentals

On 28th October 2020, Omega Diagnostics issued a trading update and notice of interim results for the six months ended 30 September 2020. Revenues are expected to come in at £3.16 million, which represents a 29% fall from the prior period. Losses will amount to approximately £1.3 million for the period. The company cited that although the results were in line with management expectations, the company was affected by short-term performance issues with its food intolerance business as a result of the pandemic.

However, management provided a more upbeat note on forward guidance, saying that “The Board remains confident in the Company's prospects and has made substantial progress over recent months in positioning the business for a significantly improved performance in the second half of the financial year.”

In June, the company sought to raise capital through an £11 million equity raise. At the end of September 2020, the cash balance stood at £6.95 million after capital investment in plant and machinery for Covid-19 related opportunities.

Part 3...

In the third part of this series, we will be taking a closer look at Braveheart Investment Group, Yourgene Health, SourceBio International and drawing some overall conclusions. Stay tuned!