FTSE 250 incumbent Oxford Biomedica (LSE:OXB) could be primed for growth for many years ahead, in my opinion. Here’s why I would add the shares to my holdings now.
Pharma growth play
Oxford is a biotech firm that specialises in the development of gene-based medicines. It was best known for its drug development platform LentiVector. This platform provides larger pharma firms the opportunity to create new treatments efficiently. Oxford charges fees for the use of its platform and receives royalties from successful drugs created and sold. Recently, Oxford is best known for its successful and lucrative partnership with AstraZeneca to create a Covid-19 vaccine.
As I write, Oxford shares are trading for 876p. At this time last year, the shares were trading for 989p, which is a 11% dip over a 12-month period. The shares have dipped 42% from 1,592p in November to current levels. Over a five-year period, the shares have returned 22%, whereas the FTSE 250 index as a whole has returned 17%.
Why I like Oxford Biomedica
I like the share because Oxford Biomedica’s recent and historic performance has been excellent, although I do understand that is not a guarantee of future performance. I use it as a gauge for determining investment viability. Looking back, I can see revenue and operating profit have increased in 2019 and 2020. With the vaccine rollout set to continue, and other deals in the pipeline, I would estimate 2021 figures could continue its performance growth streak of recent years. More recently, interim results, released in September for the first six months of 2021, were excellent. Revenue alone increased by 139% compared to the same period last year. This was primarily driven by the Covid-19 vaccine and demand levels being high.
I particularly like Oxford Biomedica’s business model which should keep revenue coming in. I mentioned earlier it generates income from platform fees and royalties from sales, which offers it some protection. For example, even if the drug developed by the larger pharma firm using the Oxford platform doesn’t make it to market, Oxford still made money from platform development fees.
Finally, Oxford is investing in its business and in 2020 opened a large new state of the art production site. This has helped it increase its ability to take on new projects and should help it increase performance and in turn, returns.
FTSE 250 stocks have risks
Pharma and drug development is a very competitive market. Although a lucrative market, every firm out there is looking to create, market, and sell the next big drug or treatment. This could affect Oxford’s performance if it were beaten by another firm involved in creating a new cutting-edge treatment. In addition to this, regulatory requirements in pharma are strict and ever changing. This could hinder its projects, as well as sales of any treatments. Royalties could be affected, meaning performance and financials could suffer.
Overall I am bullish on Oxford Biomedica shares right now and would add them to my holdings at current levels. I like its business model, as well as recent and historic performance. Analysts also believe the shares could reach as high as 2,000p! Of course, analysts’ forecasts may not always come to fruition. I believe the FTSE 250 incumbent is primed for long-term growth ahead.
Jabran Khan 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.
