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Questor: a ‘very special company’ about to list where investors will be besotted with it

·4-min read
Artist's illustration of a DNA double helix -  Reuters
Artist's illustration of a DNA double helix - Reuters

We can have no complaint about the performance of shares in MaxCyte, whose hi-tech machines help drugs firms make gene editing treatments: tipped at 370p in October last year, when we said they might be worth 500p, they closed last night at 886p and were as high as £10.40 in February.

Normally we’d consider selling when a target price has been breached so comprehensively but MaxCyte finds itself in an anomalous position that it is about to rectify, a process that could do wonders for the share price.

The company is based in America, has a roster of clients that are largely American and is the type of business that generates great enthusiasm among American investors – yet its shares trade on London’s Aim market. It would make far more sense to have a listing on the stock market favoured by its natural investors – the Nasdaq in New York – and the company is in the process of getting just such a listing.

In the words of Richard Penny of Crux Asset Management, which owns a stake in MaxCyte, “investors in the US are besotted with gene editing – they are hugely buoyant about what they see as the third age of drug discovery” built on the decoding of the human genome 20 years ago.

Besotted investors are in much shorter supply here. Britain may have a huge fund management industry but when it comes to the healthcare sector it lacks the critical mass in terms of specialist analysts, funds and brokers found in America.

In fact, you could say we are positively hostile to healthcare start-ups at present. “Fire sales of the small biotech firms held in Neil Woodford’s funds depressed share prices and damaged sentiment across the board,” Mr Penny said.

We can be much more confident about a Nasdaq listing now than we were when we mentioned the possibility last year. When the firm announced in February the raising of £40m from seven new and existing investors (all but one of them American, unsurprisingly) it said: “The financing will strengthen the company’s balance sheet as we continue to focus on accelerating revenue growth in 2021 and beyond, and marks a further important step towards our goal to dual-list on Nasdaq in 2021.”

But there are positive developments to report from the business’s operations, too. Over the past year or so it has signed partnership agreements with four companies at the heart of what promises to be a whole new industry based on the “Crispr” gene editing tool, which won Nobel Prizes for chemistry for its inventors last year.

The number of drugs being developed with the help of MaxCyte’s “electroporation” machines has increased to more than 140, from about 100 at the time of our original tip, while the total in “milestones” the company could receive if all those drugs proved successful has risen from $800 (£578m) to “at least $950m”.

As we said before, not all of them will work but we can expect a success rate of perhaps a third. Meanwhile the company makes money by selling or leasing its machines, from the sale of consumables and, in a few years’ time if all goes well, from royalties from successful treatments in which its technology was involved.

Mr Penny acknowledged that “to some extent it requires the Nasdaq listing for the share price to remain high”. But he added: “MaxCyte is a very special company. Maybe it’s expensive for the London market but it’s cheap for the US. The potential here is not just a rise of 10pc or 20pc. And at a market value of almost $1bn it is only just coming on some investors’ radar.”

Questor says: hold

Ticker: MXCT

Share price at close: 886p

Update: Essensys

We tipped Essensys, whose software helps flexible workspaces operate efficiently, in June 2019, before coronavirus threatened to turn the office market on its head. But such changes should be positive for the company, said Mr Penny, whose holding prompted our original tip.

“Big landlords need to do something with all those offices that traditional long-term tenants may be tempted to desert when half their employees work from home and the most likely outcome is to convert them to flexible workspaces,” he said.

“Essensys is a world leader in this area and in the long term it should clean up; in the short term some investors have worried about existing tenants’ ability to pay but so far it has been fine.”

Questor says: hold

Ticker: ESYS

Share price at close: 280p

Read the latest Questor column on every Sunday, Tuesday, Wednesday, Thursday and Friday from 5am.

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