UK biotechnology shares have provided some of the best returns in the market over the last six months, driven by a plethora of regulatory news about new products aimed at tackling coronavirus.

Shareholders are rightly asking whether the strong share price performances have gone too far in relation to the fundamentals, or maybe in some cases have further to run. We will now talk through the importance of the news flow and provide some guidance on which stocks you should buy or sell.

It is important to stress this is a very high risk area of the stock market so do not invest any money you cannot afford to lose.

BIGGEST SHARE PRICE GAINS

The immediate priority in dealing with the pandemic has been to identify patients who have the disease in order to isolate them and trace their contacts. Just as importantly for coming out of lockdown will be to get an accurate measure of how many in the population have already had the virus.

Therefore it shouldn’t be surprising to see the biggest share price gains in the companies which are active in developing and manufacturing coronavirus testing technology for use in hospitals and for the general public.

INVESTORS FLOCKED TO NOVACYT

Early out of the blocks was Paris-based diagnostics company Novacyt (NCYT:AIM) which launched a coronavirus test kit on 31 January. It recently said it has now been contracted to deliver £90m worth of testing kits with regulatory approvals in over 16 countries.

This includes a contract with the NHS to supply 288,000 tests per week for a six-month period beginning on 4 May. The firm has also applied to the US Food and Drug Administration (FDA) for so-called Emergency Use Approval (EUA) for its test kit. This would allow US laboratories to use the test on a temporary basis.

On 8 April the company announced a collaboration with AstraZeneca (AZN) and GlaxoSmithKline (GSK) and the University of Cambridge. Novacyt is providing its test to generate results for a new laboratory exploring alternative reagents to overcome current supply shortages.

The shares have risen more than 50 times over the last few months and while the company has quantified the revenue generated from selling test kits, the shares have run well-ahead of the news flow, and we would be cautious about chasing the shares at current levels. Investors already holding the stock might want to think about locking in some profit.

GENEDRIVE HAS MADE INVESTORS RICH

Being first is good, but so is bringing a more effective test to the market. Some analysts believe this is the case with diagnostics firm Genedrive (GDR:AIM) which has developed a one-step, ready-to-go freeze dried test, which has the dual advantages of ‘ease of use’ and transportability without the need for specialised cold storage.

The company has built capacity to be able to manufacture 10,000 tests per hour, which will go live before the end of May. In addition the company is working towards launching a point-of-case test for use outside of hospitals, in clinics or other centres where rapid testing is required.

Its share price has gone from 9p on 24 March to currently trade at 163.5p. To illustrate the massive gains enjoyed by investors, a £1,000 investment less than two months ago would now be worth £18,166.

WHY WE LIKE AVACTA

One of our favourite shares in the testing space is UK biotherapeutics company Avacta (AVCT:AIM) because we believe its rapid testing strip might prove to be a game-changer.

On 8 April it announced a collaboration with Cytiva to develop a rapid ‘point of use’ coronavirus test which can give results in minutes. The product, which can be used at home with no medical knowledge, looks similar to a pregnancy test strip but saliva is used instead of urine. This will make it more easily accepted by the public and potentially drive demand.

Only two weeks later the company announced it was ‘well ahead of schedule’ in its development. The point of care market is estimated to be worth more than $1bn where current supply cannot meet the demand.

On 5 May the company announced a partnership with US firm Adeptrix to develop a high throughput test using mass spectrometers in hospitals, contributing significantly to the increase in global testing capacity.

By adapting unutilised mass spectrometers, hundreds of tests can be analysed by a single technician in a day, increasing capacity
compared with existing techniques which detect genetic information of the virus and are very labour intensive.

Avacta, which will be paid a royalty on sales, said it expected to be ready for commercial launch very soon. Analysts believe hundreds of millions of tests will be required every month for a long period, even after the pandemic has passed.

FLOCKING TO OMEGA

Getting a good, accurate measurement of the number of people who have had coronavirus will be critical in safely reopening the economy, and the Government has formed the UK Rapid Test Consortium to develop and manufacture an antibody test.

Diagnostics firm Omega Diagnostics (ODX:AIM) announced it was part of the consortium on 9 April. Omega’s kits are also similar to the pregnancy strip but the patient provides a blood sample. The test will allow individuals to potentially go back to work if they are found to have already had the virus.

On 27 April Omega’s shares jumped 46% after its antibody test achieved a CE-Mark, indicating the product could be sold in Europe and clearing the path for revenues to be generated elsewhere around the globe.

BERGENBIO IS THE NEXT BIG STOCK

There are a number of firms testing existing drugs which were intended to cure other known diseases. This could mean getting a vaccine to market much faster than trying to develop a new vaccine from scratch.

US pharmaceutical company Gilead Sciences has been grabbing most of the headlines with its Ebola drug Remdesivir.

However we think one of the most exciting opportunities investors should take a closer look at is Oslo-based biotechnology company Bergenbio which announced on 28 April that its drug bemcentinib had become the first candidate drug to be fast-tracked to rapidly investigate its efficacy against coronavirus.

The study is being funded by the UK Department of Health and Social Care and UK Research and Innovation. Testing will cover 120 people across six NHS hospital trusts and be performed as a double-blind study.

This means half of the patients will get the drug and half will get a placebo, and provides a statistically more robust result.

The key advantage of the drug is that it is taken orally once a day and has shown to be safe and well-tolerated in hundreds of patients, in many cases over a number of years. The company raised €45m of new money on 5 May to accelerate the commercialisation potential of the drug.

Bergenbio’s shares should be available to buy on most of the main UK investment platforms under the code ‘BGBIOO’. They are listed on the Oslo market which introduces some foreign currency exposure, adding to the risks of investing in this promising company.

OTHER NAMES CATCHING INVESTORS’ ATTENTION

Treating the body’s response to the virus and potentially keeping more patients out of intensive care is another area of treatment being explored by drug companies such as drug discovery firm Synairgen (SNG:AIM) which specialises in respiratory disease.

Synairgen is one of the best performing shares this year, up more than six-fold after a string of positive news announcements concerning its SNG001 drug which is capable of being delivered directly into the lungs with an inhaler.

The aim is to be able to treat patients earlier in their infection in a home setting, given that hospitalised patients will typically have had symptoms for an average of 10 to 11 days prior to admission. The results of the current trial are expected in June.

In similar fashion, Tiziana Life Sciences (TILS:AIM) announced the development of a new technology to treat patients who develop an uncontrolled immune response that can result in severe lung damage and respiratory failure.

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