While global tech stocks have been taking a hit, Oxford Nanopore Technologies’ £3.5bn IPO last year was something of a coup for the London Stock Exchange. Jason Sinclair looks at a British biotech success story that’s shown faith in the UK’s capital markets.
Throughout the pandemic, people have said that the UK was ahead of the rest of the world in identifying and tracking new variants of coronavirus. The tool that enabled the success was nanopore sequencing. The technology has been used worldwide in an attempt to stay ahead of COVID-19, allowing better testing and epidemiological knowledge.
The scientific insight enabling this has been delivered on the back of decades of research by scientists at Oxford Nanopore Technologies (ONT), a University of Oxford spin-out that listed on the London Stock Exchange (LSE) in September 2021, in an IPO valuing the company at £3.5bn.
Nanopores are tiny holes within protein molecules. The technology passes DNA strands through these holes and measures the electrical currents they create. The resulting signal is coded into a DNA sequence, which provides rich data, enabling university, government and commercial scientists to make better decisions.
The last investment prior to the pandemic valued ONT at £1.5bn. Understandably, the proof of the real-world need for its solutions meant this valuation more than doubled by the time of the IPO, which saw £524m of shares sold and £350m of new funds raised, at 425p per share. The share price hit a high of 723p on 30 December, but has since fallen, alongside many tech stocks. At the time of writing, it was trading at 414p per share.
The ONT float provided a boost in a year that, although unprecedentedly busy, also saw a few high-profile flops, such as Deliveroo. According to Susannah Streeter, a senior investment analyst at Hargreaves Lansdown, it was “seen as a vote of confidence for the LSE as a worthy launch pad for both tech and pharmaceutical companies, particularly given NASDAQ’s dominance in this space”.
Gordon Sanghera, ONT’s co-founder and CEO, said at the time of the IPO: “We went through a thorough and rigorous process and went for London. For many, many reasons, London was the right place to float, and some of the government moves are encouraging.”
Tech giant Oracle made a £150m investment in the IPO and promised future collaboration. It joined existing investors, including Oxford Sciences Innovation, Wellington Management and Temasek Holdings, as well as IP Group, one of the founding investors back in 2005, which still owns 14.5%.
Before the IPO, Chinese investment giant Tencent owned 8.9% of the firm and Abu Dhabi-based G42 owned 6.2%. Legacy companies holding the assets of fallen investor Neil Woodford also accounted for 9.2% of stock holdings. Between these investors, fundraising prior to the IPO had been brisk, with a May 2021 round worth £195m taking lifetime funding over the £700m mark.
IPO financial advisers were Merrill Lynch, Citigroup and JP Morgan. Deloitte was the reporting accountant. Slaughter and May was legal adviser.
Sanghera, who did not sell shares in the IPO, has amassed a paper fortune of almost £70m. Willcocks sold 368,000 shares for £1.56m, but he retained 4.9 million shares. The deal also has an anti-takeover structure that gives Sanghera a golden share to ward off hostile takeovers.
Laying out plans to tap into a genomic sequencing market, estimated to be worth $5.7bn globally, he believes the company is “only in the foothills of a long and exciting journey – we’re living on the cusp of the genomic era”, with possible applications having great potential in infectious disease, cancer diagnostics, food safety and agriculture.
Neil Wilson, analyst at Markets.com, says: “The company has hit a sweet spot, since it makes devices to sequence COVID-19 variants and it’s in a sector that will become more important and attract more attention and investment.”
According to Refinitiv, the float was the world’s third largest biotech new listing in 2021. It could mark a turning point in the attractiveness of the LSE for similar companies. UK tech and life sciences businesses that reach significant scale have traditionally gone to the US, lured by regulations seen as favourable and chasing higher valuations. But with the UK government seeking new ways of attracting London listings, the stock was viewed by analysts such as Streeter as a bellwether for London’s attractiveness to investors.
Despite the business opportunities and vital work resulting from the pandemic, high costs mean that ONT is yet to turn a profit. In 2020, it reported a loss of £73m, and in 2021 it was £83m. Costs are likely to continue growing, believes Julian Roberts of Jefferies investment banking group, who forecast that the business will not turn a profit until 2026.
That did not deter initial investors, with Roberts citing its ‘scarcity value’ as one of the few biotech companies listing on London’s stock market rather than in the US, as a key attraction.
He added that investors would value shares in ONT based on its growth potential rather than its current financial performance. And as the UK government seeks to keep homegrown unicorns from being bought out by overseas companies, it’ll be hoping that the ONT float – rather than Deliveroo’s – provides the tech template.
“We’ve seen a lot of tech companies having their business model accelerated, while there’s also been a reform of the UK listing landscape. But it’s the sentiment and momentum from government and others in the City that’s encouraged entrepreneurs to look more seriously at London. Previously, they might have defaulted to NASDAQ.”
“Headwinds that had been present for the past four or five years – namely Brexit – have been removed. Investors want to deploy capital where investees will use it for growth. Companies are taking time to consider which exchange they’ll list on first, with London up against Amsterdam and the US. If I look at our pipeline for 2022, I see the boom continuing. Beyond that, pressures from interest rates and inflation could mean costs rise. Some global supply-chain challenges may come to bear on the market.
“Our research from the beginning of the year pointed towards 2022 being a year of rising business investment, with favourable implications for the equity capital markets. Investors are now taking a ‘wait and see’ approach in light of the unfolding geopolitical developments. These are having an impact, particularly on IPOs and equity raisings, compounding the slow period that is typical in any first quarter.
“However, the underlying fundamentals remain and so activity should at some point return towards longer- and medium-term strategies.”
“It should continue to innovate. It’s important we keep our high standards of governance and eligibility because they’re sacrosanct to London. There are elements where we should look to at least match what NASDAQ has on offer. We should look to make London distinctive. We shouldn’t copy but learn from experiences overseas.”
The scientific insight enabling this has been delivered on the back of decades of research by scientists at Oxford Nanopore Technologies (ONT), a University of Oxford spin-out that listed on the London Stock Exchange (LSE) in September 2021, in an IPO valuing the company at £3.5bn.
Nanopores are tiny holes within protein molecules. The technology passes DNA strands through these holes and measures the electrical currents they create. The resulting signal is coded into a DNA sequence, which provides rich data, enabling university, government and commercial scientists to make better decisions.
The last investment prior to the pandemic valued ONT at £1.5bn. Understandably, the proof of the real-world need for its solutions meant this valuation more than doubled by the time of the IPO, which saw £524m of shares sold and £350m of new funds raised, at 425p per share. The share price hit a high of 723p on 30 December, but has since fallen, alongside many tech stocks. At the time of writing, it was trading at 414p per share.
Why London?
The IPO marked a victory for the LSE after several years in which it has not seen a lot of new joiners from biotech, even losing out on listings of home-based success stories. It was the LSE’s first major biotech listing since the £580m float of Circassia, in March 2014, which saw the allergy specialist raise £200m.The ONT float provided a boost in a year that, although unprecedentedly busy, also saw a few high-profile flops, such as Deliveroo. According to Susannah Streeter, a senior investment analyst at Hargreaves Lansdown, it was “seen as a vote of confidence for the LSE as a worthy launch pad for both tech and pharmaceutical companies, particularly given NASDAQ’s dominance in this space”.
Gordon Sanghera, ONT’s co-founder and CEO, said at the time of the IPO: “We went through a thorough and rigorous process and went for London. For many, many reasons, London was the right place to float, and some of the government moves are encouraging.”
Tech giant Oracle made a £150m investment in the IPO and promised future collaboration. It joined existing investors, including Oxford Sciences Innovation, Wellington Management and Temasek Holdings, as well as IP Group, one of the founding investors back in 2005, which still owns 14.5%.
Before the IPO, Chinese investment giant Tencent owned 8.9% of the firm and Abu Dhabi-based G42 owned 6.2%. Legacy companies holding the assets of fallen investor Neil Woodford also accounted for 9.2% of stock holdings. Between these investors, fundraising prior to the IPO had been brisk, with a May 2021 round worth £195m taking lifetime funding over the £700m mark.
IPO financial advisers were Merrill Lynch, Citigroup and JP Morgan. Deloitte was the reporting accountant. Slaughter and May was legal adviser.
Growth prospects
Sanghera founded the company along with chief business development officer Spike Willcocks after they met at Oxford University. The company has about 600 employees in offices around the world, including Cambridge, New York, San Francisco, Singapore and Beijing. Its technology has been used to track the spread of the Ebola and Zika viruses, but the past two years have seen a focus on COVID-19, with handheld DNA sequencers and desktop machines used in more than 100 countries, and rapid testing kits accounting for a £144m UK government contract.Sanghera, who did not sell shares in the IPO, has amassed a paper fortune of almost £70m. Willcocks sold 368,000 shares for £1.56m, but he retained 4.9 million shares. The deal also has an anti-takeover structure that gives Sanghera a golden share to ward off hostile takeovers.
Laying out plans to tap into a genomic sequencing market, estimated to be worth $5.7bn globally, he believes the company is “only in the foothills of a long and exciting journey – we’re living on the cusp of the genomic era”, with possible applications having great potential in infectious disease, cancer diagnostics, food safety and agriculture.
Neil Wilson, analyst at Markets.com, says: “The company has hit a sweet spot, since it makes devices to sequence COVID-19 variants and it’s in a sector that will become more important and attract more attention and investment.”
According to Refinitiv, the float was the world’s third largest biotech new listing in 2021. It could mark a turning point in the attractiveness of the LSE for similar companies. UK tech and life sciences businesses that reach significant scale have traditionally gone to the US, lured by regulations seen as favourable and chasing higher valuations. But with the UK government seeking new ways of attracting London listings, the stock was viewed by analysts such as Streeter as a bellwether for London’s attractiveness to investors.
Despite the business opportunities and vital work resulting from the pandemic, high costs mean that ONT is yet to turn a profit. In 2020, it reported a loss of £73m, and in 2021 it was £83m. Costs are likely to continue growing, believes Julian Roberts of Jefferies investment banking group, who forecast that the business will not turn a profit until 2026.
That did not deter initial investors, with Roberts citing its ‘scarcity value’ as one of the few biotech companies listing on London’s stock market rather than in the US, as a key attraction.
He added that investors would value shares in ONT based on its growth potential rather than its current financial performance. And as the UK government seeks to keep homegrown unicorns from being bought out by overseas companies, it’ll be hoping that the ONT float – rather than Deliveroo’s – provides the tech template.
Oxford Nanopore Technologies timeline
2005
Founded as Oxford Nanolabs by Dr Gordon Sanghera, Dr Spike Willcocks and Professor Hagan Bayley, with seed funding from IP Group
2009
Relocates to Oxford Science Park
2012
Presents first-ever nanopore sequencing data and prepares the handheld MinION device for launch
2017
Launches the first RNA sequencing solutions
2018
Announces entry to the Chinese market, appointing distributors
2019
New manufacturing facility at Harwell, Oxfordshire, opens
2020
Technology put to use in surveillance of the outbreak of coronavirus
2020
LamPORE COVID-19 test becomes the company’s first diagnostic device
2021
After a £195m funding round, the company lists on the LSE, giving it a £3.5bn valuation
Tech performance on the London Stock Exchange
Simon Olsen, a partner in Deloitte’s equity capital markets group, gives his view on how London can build its status as a tech IPO hub, the outlook for the next 12 months and why the LSE’s standards must remain sacrosanct.What was the environment for UK listings through the pandemic?
“We’ve seen a lot of tech companies having their business model accelerated, while there’s also been a reform of the UK listing landscape. But it’s the sentiment and momentum from government and others in the City that’s encouraged entrepreneurs to look more seriously at London. Previously, they might have defaulted to NASDAQ.”
What are the market challenges?
“Headwinds that had been present for the past four or five years – namely Brexit – have been removed. Investors want to deploy capital where investees will use it for growth. Companies are taking time to consider which exchange they’ll list on first, with London up against Amsterdam and the US. If I look at our pipeline for 2022, I see the boom continuing. Beyond that, pressures from interest rates and inflation could mean costs rise. Some global supply-chain challenges may come to bear on the market.
“Our research from the beginning of the year pointed towards 2022 being a year of rising business investment, with favourable implications for the equity capital markets. Investors are now taking a ‘wait and see’ approach in light of the unfolding geopolitical developments. These are having an impact, particularly on IPOs and equity raisings, compounding the slow period that is typical in any first quarter.
“However, the underlying fundamentals remain and so activity should at some point return towards longer- and medium-term strategies.”
How can London set itself apart for tech?
“It should continue to innovate. It’s important we keep our high standards of governance and eligibility because they’re sacrosanct to London. There are elements where we should look to at least match what NASDAQ has on offer. We should look to make London distinctive. We shouldn’t copy but learn from experiences overseas.”