Oxford Nanopore/IPO: Sequencing A Would-be British Success Story

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It is an urban myth that technology companies are better off listing in New York. At least that’s what the boss of Oxford Nanopore claims as he prepares to float the genomics company on the London Stock Exchange. Gordon Sanghera’s assertion is debatable. But it is a characteristically confident statement from a company that wants both to disrupt the sequencing industry and become a national champion.

Oxford Nanopore has a shot at both. Accuracy has been a problem with the technology, which monitors changes to an electrical current as nucleic acids are passed through a tiny hole. But it is increasingly competitive with traditional camera-based approaches. The advantage of nanopore sequencing is that it can be carried out by stapler-sized devices that can deliver rapid results, anywhere.

A razor-and-blades business model is intended to reduce financial barriers to adoption. The group’s devices cost little or nothing — it profits from the cartridges they use. It believes it can grow faster than the overall $5.7bn DNA/RNA sequencing market, expecting compound annual growth of more than 30 per cent. Economies of scale and manufacturing improvements are forecast to push gross profit margins up by more than a quarter from the current 51 per cent. If successful, Oxford Nanopore could break even within five years, even allowing for research spending staying at £60m annually.

Jefferies has pencilled in sales of about £170m in 2023. If the market values the company as highly as US rival Pacific Biosciences — at 22 times its 2023 sales — its market capitalisation could be nearly £4bn. That might be a stretch, given the bigger pool of expert biotech investors stateside. But the valuation is likely to be higher than the figure of £2.4bn achieved at the last fundraising in May.

That would make Oxford Nanopore large enough to join the FTSE 250 were it not for a provision that gives Sanghera the right to block hostile takeover approaches for three years. He is keen to avoid a repeat of what happened to an earlier generation of sequencing technology. US market leader Illumina built much of its success on its acquisition of Cambridge university spinout Solexa for $650m in 2007.

Taking on Illumina, an incumbent that is more than 10 times its size, is challenging. But Nanopore’s versatile technology could expand the market. With investors likely to view the company as a credible innovator, the float should have no problems getting off the ground.

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