Oxford Nanopore takes advantage of new listing rules

  • Float is set to take place early next month
  • The company will raise £300m through issue of new shares

Oxford Nanopore’s confirmation of its intention to float earlier this month was seen as a boost for the London Stock Exchange so shortly after rules were changed allowing companies to utilise a new anti-takeover structure.

Chief executive Gordon Sanghera is one of three executives who will have a “limited anti-takeover share”, preventing a hostile takeover. 

Whether this is a good thing for shareholders remains to be seen. It removes potential profitable exit opportunities if an offer for the company is received, but it also prevents the possibility of a company that has been billed as a national champion being picked off too cheaply.

“If you are a firm believer that this can be a global leader in its space, it should be able to go it alone and that’s arguably where the best value will come,” said Julian Roberts, an analyst at investment bank Jefferies.

Oxford Nanopore is due to list in early October, but has yet to publish its prospectus. The initial offering is not open to retail investors.

The company will raise £300m through the sale of new shares, half of which are being snapped up by technology giant Oracle (ORCL). Existing shareholders will also sell stakes through a secondary offer and the company has said it aims to have a free float of about 25 per cent.

Nanopore’s biggest shareholder is currently IP Group (IPO), the intellectual property commercialisation company that backed its spin-out from the University of Oxford in 2005. It holds a 14.4 per cent stake, which it valued at £359m at the end of June, implying a valuation of about £2.5bn for Nanopore.

Other significant shareholders include Chinese technology giant Tencent (HK:0700) and Abu Dhabi-based artificial intelligence company G42, with stakes of 8.9 per cent and 6.2 per cent, respectively.

US-based Acacia Research Corporation (US:ACTG) owns 5.5 per cent, which it acquired as part of 19 unquoted healthcare holdings sold by the administrators of the now-defunct Woodford Equity Income Trust for £223.9m. A smaller stake of 3.7 per cent is held by the Schroder UK Public Private Trust (SUPP), which is managing the legacy Woodford Patient Capital Trust.

The company, which is still lossmaking, has said it expects to bring in £165m-£175m in revenue by 2023. Roberts said that applying a price-to-sale multiplier of competitor Pacific Biosciences (US:PACB) of 22.3x 2023 earnings as a guide implies a valuation of about $5.3bn (£3.9bn) for Nanopore.

The company sequences genomes in a manner that has advantages over competitors. The current market leader, Illumina (US:ILMN), uses a technique known as sequencing by synthesis, or SBS, which involves reading short pieces of DNA using chemical primers and optical equipment.

“[Its] method is great if you know where on the genome you are trying to look but it’s not particularly good if you’re trying to sequence the whole thing,” Roberts said.

Nanopore’s technology works by passing lipids containing DNA through a membrane with tiny pores. Each pore contains an electric current that reacts differently to the four bases that make up DNA samples. The main advantage to this is that it can sequence much longer strands of DNA and analyse them in real time. Using SBS, shorter strands need to be pieced together and as long stretches of the human genome are often repetitive, this requires computational analysis and can take a couple of days.

Using nanopores also allows for epigenetic mutations, or how a DNA sample is affected by its environment, to be identified simultaneously.

“That can be important for different crops and plants where they can have the same DNA sequence but because of some modification, some will grow and some won’t. This technology can identify that without having to do a separate test for it,” Adam Barker, a research analyst at Shore Capital, said.

Nanopore’s equipment is also much smaller and cheaper than competitors’. Its smallest, the MinION, is the size of a stapler and costs $1,000. This has allowed it to be used remotely – for Zika surveillance on buses in Brazil or for environmental analysis in Antarctica, for instance.

There are some disadvantages. Sequencing a genome using its technology is typically twice as expensive as Illumina’s, which has a competitive advantage in terms of a much larger user base.

Illumina has cut the cost of sequencing a genome from $150,000 in 2007 to $600 currently and has a plan to cut this to $100.

Nanopore has said a medium-term goal is to bring the cost of consumables used to conduct analysis down by replacing electronic materials with polymers, which it hopes will drive broader adoption of sequencing in more price-sensitive markets such as food safety or consumer health. It is also developing sensing and sequencing models for peptides and proteins.

In the long run, Nanopore’s goal is “to enable the analysis of anything, by anyone, anywhere”.

“I believe we are only in the foothills of what is possible,” chief executive Sanghera said, adding that rapid DNA insights can be provided in areas such as infectious disease, cancer management, agricultural optimisation and food safety.

Read more here: Source link