A big City win for life sciences as firm involved in COVID fight surges on market debut

It has been a familiar complaint from businesses and ministers alike – why do so many successful British life sciences and technology companies choose to float on Nasdaq, rather than on the London Stock Exchange, when they decide to go public?

Ministers have fretted that it means the UK is missing out on the opportunity to develop and build on its strengths in science and technology.

Rishi Sunak, the chancellor, responded to this last year by commissioning a review by Lord Hill, a former European Commissioner, to look into how the UK might enhance its attractiveness for stock market flotations and improve the capital-raising process for companies seeking to list in London.

He recommended reforming London’s rules by, for example, allowing companies with dual-class share structures – of the kind popular with the US tech sector – to join indices like the FTSE 100. At present, companies with such share structures are only permitted a ‘standard’ listing in London, rather than a ‘premium’ one that would see them, if big enough, admitted to the Footsie.

The Financial Conduct Authority, the UK’s lead financial regulator, subsequently appointed Clare Cole as director of market oversight to lead its response to the review.

She, too, has been critical of the rules governing the listing of public companies in London.

Earlier this month, at an industry conference, she said: “The listing regime is still stuck in 1984. Large aspects of our regime remain unchanged since then. At its core is a regime based on rules designed when we still stored data on a floppy disk.”

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Recent news has not offered much encouragement. This week saw Blue Prism, a Warrington-based software provider, agree a £1.1bn takeover by a US private equity firm – depriving the UK market of another promising tech company.

Today, though, brought genuine hope that the UK markets can prove a worthy home to life sciences and tech companies and that UK investors, often criticised for their conservatism, can properly get behind these businesses.

It came with the flotation of Oxford Nanopore, a genomics company, which was valued at £3.4bn. The shares promptly rocketed by nearly 45% at one point as investors scrambled to build positions – putting a valuation on the business of almost £5bn.

It represents the best-ever first day performance for a company of this size on the London Stock Exchange – putting in the shade the 40% jump in shares of Boohoo, the online fashion retailer, when it came to market in March 2014.

Gordon Sanghera, chief executive, said: “Today is a very proud day for the entire Oxford Nanopore team, but we believe we are only in the foothills of a long and exciting journey.

“We are living on the cusp of the genomic era. I believe that our unique technology will open up many new possibilities for positive impact, both through enabling new discoveries in scientific research, and through more accessible, faster, richer biological insights in health, agriculture, food and understanding environments.

“I would like to thank all the scientists in our user community, who are performing ground-breaking work in so many places and disciplines, and am hugely excited about what is to come.

“We are delighted by the positive response we have received from investors around the world during this process and look forward to welcoming our new shareholders. Our focus remains on continuing to innovate, grow, and working towards our goal of enabling the analysis of anything, by anyone, anywhere.

“This IPO brings us a step closer to being able to fulfil that ambition.”

There are a number of reasons why Oxford Nanopore has captured the imagination of investors.

The first is that the company, which provides genome sequencing technology for the medical, food and agriculture sectors, is in one of the hottest fields of technology at present.

The pandemic highlighted the importance of genome sequencing in developing vaccines for viruses such as COVID-19.

Oxford Nanopore’s technology was instrumental in identifying the genome of the virus and then in helping to identify and track its variants. The technology is also playing a key role in the fight against other infectious diseases as well as conditions such as cancer.

But it also has wider applications, for example, in supporting environmental research, animal conservation and supporting biodiversity. It can also support agriculture by, for example, providing insights into plant biology. In short, there is vast potential, which is starting to translate into higher sales.

Not only is the technology exciting investors – it is the way it is delivered. One key element of Oxford Nanopore’s business model is that its technology can be accessed comparatively cheaply and easily via a palm sized sequencer, the MinION, whose start packs sell for as little as $1,000. This device, nicknamed the ‘smartphone of sequencing’, allows scientists to have their own personal sequencing device and breaks down their dependence on centralised service providers.

So this is a company with vast potential and, although it is yet to make a profit and may not do so for a number of years, its sales are growing rapidly. During the six months to the end of June, sales in its core area of life science research tools came in at £52.6m – more than double the £27.4m achieved in the same period last year.

The second factor is the valuation that has been applied to other businesses in the sector. Oxford Nanopore, which was spun out of the University of Oxford in 2005, was floated with a similar valuation – in terms of the price to sales ratio – of a US company, Pacific Biosciences, a highly rated business.

And these assets are rare. The market leader, the US giant Illumina, agreed in September last year to pay $7bn for Grail, a business similar to Oxford Nanopore.

Thirdly, investors who might otherwise have balked at paying up for shares in a loss-making business have been given comfort by news three weeks ago that Oracle, the US database management giant, had agreed to become a cornerstone investor in the IPO, subscribing for £150m worth of shares at the offer price.

Moreover, there were already credible investors on board. M&G, one of the UK’s biggest institutional investors, invested £35m in a £195million funding round carried out by the company in May this year that, at the time, valued it at £2.4bn.

Doubtless looking on with mixed feelings at today’s successful flotation will have been Neil Woodford, the fallen fund management star, who was an early supporter of the company.

Investors in the Schroder UK Public Private Trust – which is the rebadged former Woodford Patient Capital Trust – will have benefited from the IPO. It sold a stake worth £11m while retaining a shareholding now valued at more than £100m.

But investors in the bigger Woodford Equity Income Fund will have missed out since its administrator, Link, offloaded its 6% stake last year for just under £100m. It would have been worth three times that today.

Mr Woodford will at least have the grim satisfaction of knowing that his hunch was correct and that he backed a winner.

Today’s flotation is not only a vindication for him. More important is that it is a ringing endorsement of the London stock market as a home for growing life sciences and technology businesses.

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