Why Novacyt shares are up 8,000% on AIM

Covid treatment stocks Novacyt and Synairgen are in the spotlight again. Here’s all you need to know.

Novacyt (LSE:NCYT) shares surged to a new record today after a major Department of Health contract win re-ignited interest in one of the most remarkable AIM-listed stories of recent years.

The diagnostics company has been transformed by the global roll-out of its Covid-19 testing kits, with shares up by more than 8,000% in the space of a year to reach today's high of 592.5p.

The latest rally repays the faith of those investors who stayed loyal to Novacyt despite seeing the share price drift back from April's high of 529p to just above 200p in June.

Novacyt has been one of this year's hottest stocks on the interactive investor platform, alongside the likes of Synairgen (LSE:SNG), Genedrive (LSE:GDR), Oxford BioMedica (LSE:OXB) and Avacta (LSE:AVCT) as these companies play an increasingly important role in helping deliver Covid-19 tests, treatments or vaccines.

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Synairgen was in the spotlight today after the respiratory drugs company announced further progress on its treatment for helping hospitalised Covid-19 patients to recover more quickly from the virus.

It disclosed it is working with pharmaceutical services company Clinigen, whose European experience and regulatory expertise will help advance SNG001 after this month's positive results from phase II trials.

Synairgen CEO Richard Marsden added in today's interim results that the first six months of 2020 had been the most significant in the Southampton-based company's history. He revealed cash balances of more than £10 million at the end of June, having raised £14 million from investors in April to fund Covid-19 related activities and to strength the balance sheet.

The former University of Southampton spin-off surged more than 600% at one point in the summer, with more than 50,000 trades alone during July amid hopes that revenues could be generated from the treatment before the end of the year. The shares were valued at just below £250 million today after falling back 3% to 157p.

The renewed interest in Novacyt shares follows the UK's Department of Health second major contract award to the company's molecular diagnostics division Primerdesign, which is also based in Southampton.

The first phase, which will involve the deployment of 300 polymerase chain reaction instruments for use in the rapid testing of NHS patients, is worth a minimum £150 million over 14 weeks. A second phase could be worth a further £100 million, depending on demand.

The significance of this contract is highlighted by Novacyt's 72.4 million euros (£65.9 million) of revenues in the first six months of the year and its hopes to exceed 150 million (£136.5 million) across the whole year.

It pointed out today that it has the manufacturing capacity to meet the demand of both phases of the new contract, as well as to continue to build its sales across international markets. It said recently it is selling its Covid-19 testing equipment in more than 100 countries

CEO Graham Mullis said his company was now playing a key role in helping to fight the Covid-19 pandemic, while enhancing its own reputation in UK diagnostics.

He recently told investors the company intends to utilise its much stronger cash flows to identify opportunities to expand its presence in respiratory and transplant clinical diagnostics. It has just settled all outstanding debt after sales rose by 900% in the first half alone.

The company further strengthened its product offering today with the launch of a CE-mark antibody test for Covid-19. Mullis said: “We believe an antibody test plays an important role in aiding the diagnosis of COVID-19, as well as increasing our understanding of the disease through screening of populations for infection rates and immunity.”

Novacyt shares later settled at 557.5p, representing a rise of 19% on the day.

The pace at which the company acted on the coronavirus shouldn't come as a total surprise, given that the Primerdesign division also developed molecular tests for other major incidents, such as the outbreaks of Swine Flu in 2009, Ebola in 2014 and Zika in 2016.

The division was founded in 2005 by Dr Rob Powell as a spin-out from Southampton University and funded by a single £30,000 loan. The business became profitable in its first year and required no further investment funding until its sale to Novacyt in May 2016.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.