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Irrespective of how satisfied I’m of the funding case for a selected progress inventory, I’d by no means put 100% of my money in only one share. Diversification is an important pillar of my investing technique, because it protects my portfolio towards the opportunity of a devastating company-specific occasion.
However what if I had been restricted to purchasing a single UK progress inventory? With so many selections accessible for traders, it’s arduous to decide on one firm above all others. I used to be curious to see if ChatGPT had a spectacular suggestion I may need missed.
Genetics for progress
The AI chatbot began with boilerplate wording cautioning towards going all-in on one progress inventory, describing it as “extraordinarily dangerous“. I agree. But it surely performed together with my loopy thought, choosing Oxford Biomedica (LSE:OXB) because the stand-out share to contemplate.
I need to admit, I’d solely come throughout this FTSE 250 gene and cell remedy enterprise earlier than in passing through the pandemic. Again in 2020, the agency signed a outstanding manufacturing settlement with AstraZeneca to supply Covid-19 vaccines. Naturally, ChatGPT’s reply inspired me to look deeper.
The corporate, which now trades as OXB, began life as a spin-out from the College of Oxford in 1995. At this time, it’s a pure contract growth and manufacturing organisation (CDMO).
This implies OXB’s boffins deal with complicated lab work and large-scale manufacturing so its clients don’t should. The agency serves main pharma firms, similar to Novartis and Bristol Myers Squibb, by manufacturing viral vectors and gene remedy parts.
Danger and reward
The biotech sector suffered in a post-pandemic world, and OXB was no exception. Its share worth remains to be down practically 40% over 5 years. However this yr has been extra promising with the shares rising from 420p in January to over 600p in the present day.
Current outcomes present a optimistic trajectory. Within the first half of FY25, income surged 44% to £73.2m, and the group’s order ebook skyrocketed 166% to £149m.
It’s nonetheless a loss-making firm, which brings dangers for traders contemplating the £728m valuation rests on the agency’s future potential. Nonetheless, pre-tax losses have narrowed to £26m from £35.7m, so the route of journey seems good.
Increasing manufacturing capability is a significant precedence for OXB. These ambitions got an enormous enhance from a profitable £60m fundraising earlier this yr. In October, the corporate used a few of these funds to amass a commercial-scale, FDA-approved viral vector manufacturing web site in North Carolina, which is anticipated to be absolutely operational in early 2026.
The funding alternative in OXB shares must be weighed towards a price-to-sales (P/S) ratio above 4 and a price-to-book (P/B) ratio above 22. Whereas progress shares within the biotech sector typically have increased valuation multiples, I believe these figures depart little room for error. Any medical trial setbacks or the lack of a key buyer might ship the share worth tumbling.
My view
ChatGPT’s progress inventory champion was an attention-grabbing alternative, but it surely wouldn’t be my primary decide. In any occasion, I already spend money on AstraZeneca, so I received’t be shopping for OXB shares in the present day. Diversification issues and I don’t need an excessive amount of biotech publicity in my portfolio. However I’ll preserve an in depth eye on this firm to see if it will possibly realise its potential.
