I see interesting times ahead for the GSK (LSE: GSK) share price. GlaxoSmithKline is one of the largest UK biotech stocks trading on the London Stock Exchange. It’s a global giant, with an impressive £1.7bn free cash flow in Q1 alone.

But its share price has been losing ground against its competitors, barely moving over the last five years. It’s not even kept up with inflation.

Could that be about to change as it goes through what it describes as “the most significant corporate change for GSK in the last 20 years”?

Change ahead for the GSK share price?

For some time, the company has been seen to be lagging behind its peers. The last decade has seen it fall from being the third-largest pharmaceutical company in the world down to 14th, based on its market cap.

CEO Emma Walmsley’s response has been the slow progression of plans to split the company in two. And next month should finally see the spin-off of its Consumer Healthcare division into a separate company called Haleon.

But will the estimated £2.4bn cost of the split, one of the most expensive ever, be worth it?

Can GSK benefit from the deal?

The deal will give the company a one-off pocketful of £7bn in cash to spend. That’s seen as fundamental for developing its drugs pipeline, especially in areas such as cancer where it’s noticeably lagging competitors.

This is something that should have a positive impact on its share price. But that’s only if it’s able to transform itself from a global giant into the nimble biotech-focused company it says it wants to be.

In particular, it wants its R&D teams to focus on the science of the immune system, use of human genetics and advanced technologies.

That all sounds wonderful and exciting on paper – but I’m politely curious (read a little sceptical) as to whether reality will match its ambitions. 

Can the ‘new’ GSK compete in the biotech world?

With the pandemic bringing vaccine development sharply into the limelight and increased competition, it’s probably fair to say the biotech world is a tougher place to win these days.

The average business spend for companies developing new drugs may have fallen sharply from a high of $2.8bn to $1.3bn, but that’s still a huge chunk of cash to bet on a single product.

That’s why having a diverse pipeline of drugs is essential for GSK (just like my Foolish investing approach in shares). If one drug fails to perform as hoped, others may plug the revenue gap.

Right now, its focus appears to be on buying its way out of its pipeline problem, such as its recent £1.5bn purchase of Sierra Oncology. Or there’s the £2.1bn upfront payment to Affinivax, a clinical stage vaccine developer.

That’s an expensive approach and not one I’d be keen on seeing it adopt as its main strategy.

The market may well want to see tangible proof of its R&D investments paying off before it rewards GSK with a higher share price.

So to answer my question in the title, I don’t think the fact of the demerger alone will drive the price higher. For now, I’ll hold off on buying GSK shares. But I’ll watch with interest to see if it takes advantage of its post-demerger opportunities.

The post After its £2.4bn demerger, can the GSK share price blossom? appeared first on The Twelfth Magpie.

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Michelle Freeman holds shares in GlaxoSmthKline. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As a Fool keen to tap into long-term investment trends, I’m bullish on the outlook for the biotech sector. As such, I’ve been closely following the performance of the Oxford Nanopore (LSE: ONT) share price since the company’s highly successful IPO.

Should I be piling into the DNA-sequencer’s stock as soon as possible, or steering clear for now?

IPO success story

Based on trading to date, it’s easy to think the former. Such was the scale of demand, the Oxford Nanopore share price exploded to 645p from its initial IPO value of 425p on 30 September.

Clearly, its involvement in tracking variants of Covid-19 over the last year or so has done the firm’s profile no harm at all. However, early investors also seem to think its plans to move into the applied genomics market — including areas such as agriculture and food safety — could light more fires under ONT stock in time.

Like every potential investment however, it’s worth asking what can go wrong as much as what can go right. I see two potential issues. 

#1 Post IPO sell-off. Although the initial gains have been excellent, there’s no guarantee the Oxford Nanopore share price will continue to ascend, even if the company executes its plans perfectly. Regardless of quality, traders will routinely sell up once the buzz dies down. It’s worth noting that momentum’s already stalled a little. The stock changes hands for 577p, as I type.

# The growth is priced in. With the Oxford Nanopore share price charging ahead, the company quickly boasted a market capitalisation of £5bn after its IPO. Based on the growth potential, that’s not entirely irrational. However, this is still a nascent market and ONT only generated a little over £100m in revenue last year. It’s also unprofitable, and could be for years.

Safer bet?

Considering the above, I won’t be investing in ONT just yet. Instead, I’m content to keep adding to my holding in Biotech Growth Fund (LSE: BIOG). This may seem like a rather odd decision. After all, BIOG’s share price has declined 18% over the last 12 months. 

So, why BIOG over ONT?  Three reasons:

1# Safety in numbers. The Biotech Growth Trust has 87 holdings, based on its latest factsheet. Given the aforementioned volatility often seen in the sector, I reckon this diversification makes it considerably less risky than ONT.

2#Great track record. Despite performing poorly in 2021, BIOG has done admirably for investors over a longer time frame. Since September 2016 (and despite the recent sell-off), the share price has climbed 71%. If shares had been sold at the February peak, the gain would have been 145%.

3#Small-cap focus. BIOG’s preference for small-cap companies helps explain recent underperformance. Since these have the potential to grow at a far higher clip than established heavyweights, the longer-term gains should theoretically be very good indeed. What’s more, BIOG offers exposure to fast-paced players in emerging markets such as China.

Obviously, the share price could continue falling for now. Regardless of what happens in the global economy, it’s also worth noting that only a minority of biotech firms become profitable. Those relatively high ongoing fees (which holders of ONT won’t have) will need to be paid whatever happens.

As things stand though, BIOG will remain my sole biotech holding. Oxford Nanopore goes on the watchlist. I’ll reassess if/when the froth subsides.

The post The Oxford Nanopore share price soared at its IPO. Should I buy now or wait? appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Biotech Growth Trust. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Why is the stock surging? And should I add this company to my growth portfolio? Let’s take a look.

FTSE small-cap: a biotech stock with hidden potential

PureTech Health (LSE:PRTC) discovers, develops, and commercialises new treatments for diseases that affect the brain, immune system and gut.

A common problem with young biotech companies is finding the necessary funding to develop new medicines. After all, the process is long and expensive, with a high chance of failing to deliver a viable product. But this FTSE small-cap stock has found an intriguing solution.

The business comprises two pipelines. The first is called Wholly Owned, which, as the name suggests, develops new drugs entirely owned by PureTech. The second pipeline is where things get interesting, in my opinion.

It’s called Founded Entities and is essentially a portfolio of nine independent businesses of which PureTech is a major stakeholder. What’s more, some of these businesses, such as Karuna Therapeutics, are actually listed on the stock exchange themselves. So, whenever PureTech needs to raise additional capital to fund its own drug development, it can sell some of its shares.

Combining both pipelines, PureTech has 23 product candidates in its portfolio, 14 of which are already in clinical trial phases, with another two on the market today.

Drug development is risky

The biotech stock has an extensive portfolio of products in its pipelines. And while most have either entered or are entering clinical trial phases, there’s a considerable level of risk to consider.

Firstly, none of the drugs in its Wholly Owned pipeline have been FDA approved as they are mostly in phase 1 trials. And given that the typical drug development cycle lasts around 10 years, it could be some time before any of these products yield tangible returns. And that’s assuming they don’t fail along the way.

Today, the firm generates all of its profits from Founded Entities through stock sales and royalty income on two FDA-approved medicines. The remaining products are once again at various clinical trials stages, although there are two in their final phases.

The highly regulated nature of the drug development industry protects the health of patients. But it also makes it incredibly difficult to release new treatments. Even if a new medicine is approved, there’s still the chance that it won’t be economically viable. For example, PureTech’s new drugs may not be covered by health insurance policies or government health authorities.

The bottom line

This FTSE small-cap biotech stock undoubtedly has a significant level of risk attached to it, especially since the business is currently structured more like a holding company, as opposed to a regular biotech stock.

But over the long term, PureTech looks like a solid business in my eyes. It has a vast portfolio of potential products and is set to continue receiving royalties from treatments designed and developed by other firms. This is one biotech stock I’d add to my growth portfolio.

The post 1 FTSE small-cap biotech stock I’d buy now appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in PureTech Health. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Using biotech to diagnose Covid-19

Abcam (LSE:ABC) manufactures pharmaceutical reagents and provides research tools to companies engaged in diagnostics and drug development. Over the years, the firm has built up a vast portfolio of over 450 antibodies that are commonly used in blood tests (including those used to diagnose Covid-19) as well as the development of new medicines.

I discovered an impressive figure from 2019. Almost half of the scientific papers published related to drug development cited one of Abcam’s products as critical to the research. Needless to say, the firm’s products are well known and widely used. And they have even led to 20 new treatments that are either FDA approved or in clinical trials today.

The business generates revenue from several sources. The bulk comes from the direct selling of reagents to customers worldwide. The other — currently much smaller — sources include service fees, licenses of its technology, and royalties from approved treatments.

The latter component is what I find most fascinating as Abcam continues to receive a portion of each sale of a treatment that was developed using its reagents. Due to the typical 10-year drug development cycle, the number of FDA approved medicines using Abcam’s products is currently quite low. But over the long term, I expect this revenue source to become far more substantial.

The biotech stock is not risk-free

Beyond its shares being AIM-listed, Abcam is exposed to multiple risks. Its international operations did help make it a globally recognised brand within the biotech industry. But as a result, most of the revenue now originates from outside the UK, primarily coming from North America. This exposes the firm to fluctuating currency rates that may have a notable impact on the bottom line.

This global presence also introduces some additional complications regarding regulatory compliance. As I’ve previously discussed, the pharmaceutical industry has some of the world’s strictest regulations. Different countries have different regulatory standards. And while most are similar to FDA, there are some differences that Abcam needs to comply with.

If the business fails to do so, its products would no longer be allowed to be used in certain countries. And it would likely have a significant impact on the business from both a legal and reputational standpoint.

The bottom line: should I buy shares in this AIM Stock

Despite the impressive and vital technology that Abcam provides, it’s not a stock I’ll be adding to my portfolio. At least not at the current price.

The firm’s net income has recently been dropping as it has begun increasing spending to expand faster. Sacrificing profits in the name of growth is a perfectly acceptable strategy, in my opinion. However, this promise of growth has elevated the share price to a level that seems unsustainable to me.

With a P/E ratio of nearly 280, Abcam just looks too expensive. But I’ll be keeping a close eye on it for any potential buying opportunities throughout 2021.

The post AIM Shares: 1 biotech stock to watch in 2021 appeared first on The Twelfth Magpie.

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• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
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Zaven Boyrazian does not own shares in Abcam. The Motley Fool UK has recommended Abcam. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.