Shares of Novacyt SA (LON: NCYT) are down 61.4% in 2021. Can they reverse course and head higher after the recent launch of two new COVID-19 tests?
The decline in the medical diagnostics company’s shares was driven by the loss of the Department of Health & Social Care (DHSC) supply contract, which cut its revenues by approximately 50%.
Novacyt has also been a victim of concerns about the sustainability of its business model once the coronavirus pandemic is under control and demand for test kits shrinks drastically as the world embraces a new normal.
However, it appears that the coronavirus is here to stay with minimal chances that the world shall soon stop testing people for the SARS-Cov-2 virus.
Furthermore, Novacyt recently announced a new rapid lateral flow test that can accurately identify new variants of the coronavirus, including the Brazilian, South African, and Indian variants of Covid-19.
The diagnostics company also announced a three-gene assay test that can be used to quickly verify if air passengers are fit-to-fly, allowing airlines to verify COVID-19 certificates and determine if a passenger can fly.
These two tests could be precisely what the company needs to replace the income lost after the cancellation of the UK government contract. These are the first such tests, and their immediate applicability in crucial industries is a bonus.
Novacyt generated £167.4 million in 2020 by capitalising on its enviable position as the first company to produce a highly reliable COVID-19 test. Therefore, I would not be surprised to see it do the same with its new tests.
The medical diagnostics company will benefit immensely if its tests are adopted by private clients such as airlines, creating new revenue streams for the company to replace the lost government revenue.
From a technical perspective, Novacyt shares are trading below the support level identified in previous articles and could fall further if the price does not reverse course. However, its fundamentals support the bullish case.
*This is not investment advice.
Novacyt share price.
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