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Why Oxford Nanopore IPO proved a major hit

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·4-min read
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Shares in the DNA-sequencing company rocketed on their first day of trading. Photo: Getty
Shares in the DNA-sequencing company rocketed on their first day of trading. Photo: Getty

Stock market listings have been all the rage over the last year, with the London Stock Exchange (LSEG.L) becoming home to a number of international companies.

A boom in firms listing in the City this year meant that it had its best first quarter for initial public offerings (IPOs) in 15 years.

Whilst some companies, like food delivery firm Deliveroo (ROO.L), struggled on their market debut, suffering one of the worst on record in March, others have proved to be a major hit with investors. Oxford Nanopore is one of them.

Shares in the DNA-sequencing company rocketed on their first day of trading in what has become London's biggest biotech listing. It became the eighth-biggest listing in London this year and the third-largest biotech float globally in 2021, according to Refinitiv.

The company, which provides COVID-19 test kits to the NHS, had priced its shares in the IPO at 425p each, in the top half of an initial range after selling more shares than planned due to high demand.

Read more: IPO Watch: Goldman Sachs plans $5bn Petershill IPO

However, during the first day of trading, shares climbed 45% from the flotation price to as much as 619p within an hour.

Here are a few reasons why it has done so well:

Healthcare appeal

Oxford Nanopore is a spin-off of the University of Oxford, founded in 2005. It has around 600 employees in offices in Cambridge, New York, San Francisco, Singapore, and Beijing.

The group develops products that are used to analyse DNA, RNA, proteins and small molecules, which can be applied in scientific research, crop science and more.

Its primary revenue stream is from universities and laboratories conducting scientific research, but it plans to move into the applied genomics market, including agriculture, pharmaceuticals, food and water, and safety, as well as infectious disease, immune profiling, and cancer diagnostics.

Read more: Oxford University looking to raise £500m for new Pandemic Sciences Centre

Healthcare is a huge market, and the potential to generate revenue from its technology is high. In particular, the sequencing industry is still relatively young, with opportunity for growth.

According to a report by Grand View Research, the sector is estimated to expand at a compound annual growth rate of 11.4% between 2020 and 2027, reaching a total market size of just over £10bn ($13.6bn). This means that a large amount of the market is currently untapped.

London listing

Oxford Nanopore's IPO marked a significant move for the London Stock Exchange as most British pharmaceutical and life science companies usually list on New York's Nasdaq (^IXIC), or have opted for the LSE's junior AIM bourse.

Over recent years, the UK has struggled to grow big tech businesses that can compete internationally. Those that have reached significant scale have mostly gone to the US to list shares publicly because of more favourable valuations and share rules there.

But the UK government has been seeking ways to attract more listings in the City from innovative companies.

Read more: IPO watch: From DarkTrace to Deliveroo, the winners and losers of London listings

The stock was viewed as a bellwether for the sector’s attractiveness to investors in London.

“This will be seen as a vote of confidence for the London Stock Exchange as a worthy launch pad for tech and pharmaceutical companies,” Susannah Streeter at Hargreaves Lansdown said last week.

COVID-19

The Oracle Corp-backed company's sequencing technology has been used by researchers in 85 countries to identify and track the evolution of COVID-19 variants.

Due to the pandemic, it won government contracts which helped revenues double between 2019 and 2020, soaring from £52m to £113.9m.

“Oxford Nanopore Technologies is a frontrunner in the next generation of sequencing technologies,” said Julian Roberts, equities analyst at Jefferies.

“The last year changed Nanopore’s revenues completely. One contract alone from the UK government was £115m, which was more than their entire revenue for the previous year. The pandemic really put them on the map.”

Read more: IPO Watch: How to spot a unicorn

Oxford Nanopore has added about $1bn to its market value since its last funding round in May, placing it among the UK’s most valuable startups.

"The company has really hit a sweet spot since it makes devices to sequence COVID variants, and it's in a sector that will only become more important, attract more attention and more investment over the coming years," Markets.com analyst Neil Wilson said.

Watch: What are SPACs?

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