Novacyt’s success shows the power of the first mover advantage

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Shares in diagnostics firm Novacyt SA (LON:NCYT) hit an all-time high on Tuesday after the company launched a new coronavirus antibody test while simultaneously unveiling a new supply contract for testing kits with the UK Department of Health and Social Care (DHSC), the second deal the firm has secured with the department.

The last 12 months have been a story of astronomical growth for the company, with the share price having risen from around 6.8p last September to around 567p in lunchtime trading on Tuesday.

That’s a growth rate of just under 8,340%, with Novacyt’s market cap having also ballooned to over GBP400mln.

The company’s massive success is perhaps most notably due to the coronavirus (COVID-19), more specifically the decision made last December by Novacyt’s boss, Graham Mullis, to begin researching a diagnostic test for the virus when reports of patients suffering from the illness began to emerge from the city of Wuhan in China.

This was followed by the launch of the test in early February, one of the first to hit the market, which quickly saw a flurry of interest as nations and organisations scrambled to prepare themselves for the effects of the pandemic, which at that point had begun to appear in numerous countries outside of China.

However, the real boost for the company came on April 8 when the COVID-19 test was deemed eligible for procurement under the World Health Organisation’s (WHO’s) Emergency Use Listing (EUL) process, a procedure for assessing and listing unlicensed vaccines, therapeutics and in vitro diagnostics with the aim of expediting their availability to people affected by public health emergencies.

The news caused the shares to more than double in value over the following three trading days, while at the same time the company also unveiled partnerships with pharma giants AstraZeneca PLC (LON:AZN) and GlaxoSmithKline PLC (LON:GSK) as well as the University of Cambridge to increase testing for COVID-19 in the UK.

While COVID-19 is not the first epidemic illness that Novacyt has sought to tackle, having previously developed tests for Zika, Ebola and SARS, it has undoubtedly been the biggest boost to date for the shares.

The stock may run out of steam, but other firms are also on the bandwagon

While the initial surge in the value of Novacyt mostly tapered off over the summer, potentially due to falling cases and the easing of lockdown restrictions in several countries, the shares have begun to spike again as these nations begin to see a ‘second wave’ of infections, once again raising demand for mass testing to bring the virus back under control.

READ: Anatomy of a winner: picking a coronavirus success stock

However, the successful development of a coronavirus vaccine will inevitably serve to place a timer for how long the company can rely on high demand for its diagnostics kits, a shift that could see its value diminish for investors in the longer term.

The company may also find its competition undermined by other small cap firms that have sought to jump on the COVID-19 bandwagon by introducing new products to either diagnose or treat the symptoms of the disease.

READ: Synairgen teams up with Clinigen to provide a managed access programme for Covid treatment

One such firm is Synairgen PLC (LON:SNG), which like Novacyt has seen its share price rocket over the last 12 months to around 162.5p at Monday’s close from around 8.8p a year ago, a rise of 1,757%.

The key catalyst for the company’s recent success is SNG001, an inhaled interferon-beta treatment that is designed to alleviate virus-induced exacerbations in patients suffering from Chronic Obstructive Pulmonary Disease (COPD) and undergoing treatment with systemic corticosteroids. It is hoped that the treatment can be used to reduce the symptoms of COVID-19 in patients and lower fatality rates.

Shares in Novacyt were up 21.3% at 567p in lunchtime trading on Tuesday, while Synairgen was 3.1% lower at 157.6p.

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