Like many biotech companies that joined the fight against Covid-19 last year, the Omega Diagnostics (LSE:ODX) share price has seen some explosive growth. In 2020 alone, the stock surged more than 300%!
But by comparison, its recent performance has been quite disappointing. Since around March this year, the ODX share price has been on a downward trajectory, falling from around 100p to nearly 60p. However, towards the end of last week, the stock suddenly exploded by over 20%, rising to around 73p today. As a result, the 12-month performance now sits at around a 25% return. But what caused this growth?
ODX Share price: more growth on the horizon?
Omega Diagnostics is a small biotech firm. It primarily focuses on developing diagnostic products to detect food intolerances, allergies, and, more recently, viral infections like Covid-19. Its rapid progress in creating lateral flow antigen tests for the virus opened up several growth opportunities. In fact, this appears to be the primary driver behind the explosive ODX share price last year. But why is the stock price now surging again?
Recently, the management team made a series of promising announcements.
The first relates to its government manufacturing contract. As a reminder, this agreement is for the production of rapid Covid-19 tests within the UK. Omega says it’s standing by, ready to start manufacturing tests just as soon as the Department of Health and Social Care (DHSC) gives the green light. Unfortunately, this process is taking longer than expected. However, it is worth noting that Omega Diagnostics has already received £2.5m (before VAT) in pre-production payments from the UK Government, and stands to benefit a great deal more once the ball gets rolling.
Secondly, the company has begun pursuing a CE mark for its antigen tests to enable it to start selling in Europe. Omega has actually already received a CE mark for professional use. But it wants to expand this to home use as well. As it stands, the management team expects approval by the end of July.
Combining these announcements, it seems that Omega Diagnostics is about to see a boom in both production and sales of its rapid Covid-19 tests. Needless to say, this offers some substantial growth for the business. And so, seeing the ODX share price take off is not that surprising to me.
There remain several risks
The potential growth that lies ahead is substantial in my eyes. However, whether this can be sustained over the long term remains to be seen. As it stands, Omega expects to generate a significant portion of its near-term future revenue from the sale of its Covid-19 tests. But as the vaccine rollout continues to progress worldwide, the demand for these products will likely decline, as may the ODX share price.
The company does have a diverse portfolio of alternative diagnostic products already on the market. But the income generated by these is not on the same scale as its most recent viral tests.
But the surge in initial income from the government manufacturing contract has flooded the balance sheet with plenty of cash. And this provides the management team with a notable amount of liquidity to pursue the development of new products to replace the Covid-19 sales in the future. But until such products are announced, Omega Diagnostics remains on my watch list.
The post Why did Omega Diagnostics (ODX) share price surge last week? appeared first on The Motley Fool UK.
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Zaven Boyrazian does not own shares in Omega Diagnostics. 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.