Novacyt (NYCT) Shares Crashed 16% on Fresh Twist in the DHSC Dispute

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Simon Mugo
Updated: 26 Apr 2022

Key points:

  • Novacyt shares crashed 16% after the DHSC issued a £134.6m claim.
  • Investors were shocked at the new twist in the dispute that started in 2021.
  • However, Novacyt may not end up paying the claim if it wins.

The Novacyt SA (LON: NYCT) share price crashed 16% today as its dispute with the UK Department of Health & Social Care (DHSC) took on a new twist after the DHSC issued a claim worth £134.6 million against the company.

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Also read: The Best Healthcare Stocks To Buy Right Now.

Not only is the DHSC unwilling to pay the outstanding amount of £73 million due to Novacyt as of June 2021, the department now wants to claw back the payments made to the company, which is in line with the disputed revenue generated by the company in Q4 2020.

To put things in perspective, the UK Health Security Agency has approved two COVID-19 tests from Novacyt so fast in 2022, indicating that the clinical diagnostics company manufactures very effective tests, given that the two tests passed the highly stringent Coronavirus Test Device Approvals (Amendment) Regulations 2021 (“CTDA”).

The new rules saw many COVID-19 tests locked out of the UK markets since they are yet to pass the tests, with some failing to pass the tests after the British government found itself in a COVID-19 test-kits scandal freezing payments to several firms.

In what appears like a clear case of the government covering its mistakes, many firms that had supplied COVID-19 tests to the DHSC are currently embroiled in disputes with the DHSC. However, this is the cost of doing business with the government. Sudden contract cancellations are the norm, especially if a public outcry could affect a government’s political standing.

Looking at Novacyt, we can see that the company kept doing well due to significant demand for its tests from private customers. However, other businesses still had to meet the government’s testing regulations.

However, the UK COVID-19 testing markets have shrunk significantly in recent months after the lifting of mandatory testing requirements by the government, causing many companies that manufacture COVID-19 tests to struggle to find customers.

Still, Novacyt has other tests that it can market and sell, such as its Microgen bioproducts, Lab21 healthcare products, and primer design PCR tests, but none of them has the global market that its COVID-19 tests have.

All hope is not lost for NYCT shares. From one angle, the worst that can come out of the DHSC claim is that the company has to pay the DHSC’s claim, which is quite unlikely given that the UK courts will have the final say when it comes down to it.

Furthermore, the shares have fallen over 90% from their all-time highs above 1200p, hit in October 2020 at the height of the COVID-19 pandemic. We could see their bottom soon. NYCT shares could lose more ground if the DHSC wins its claim, but the firm still has other opportunities that generate revenues, unlike many pre-revenue biotech companies.

Novacyt share price.

Novacyt share price 26-04-2022
Source: IG

Novacyt's share price fell 16% to trade at 159.47p, falling from Monday's closing price of 193.50p.

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