Novacyt dispute with DHSC to dent 2021 profit, shares slide

(Sharecast News) - Novacyt said on Friday that a dispute with the Department of Health and Social Care (DHSC) over a supply contract could have a "material" impact on fourth-quarter revenues and dent 2021 profit and revenue, sending its shares sharply lower.
The biotechnology group announced last September that it had secured a second supply contract with the DHSC for exsig®COVID-19 Direct kits and other products. In its trading update in January 2021, it said it was in active discussions with the DHSC about an extension of the supply contract.

However, an extension has not been agreed, although it has supplied PROmate in the first quarter, in accordance with DHSC demand.

"Regrettably, the parties are now in dispute regarding the contract, which may have a material impact on Q4 2020 revenues," Novacyt said. "However, the company has taken legal advice and believes it has strong grounds to assert its contractual rights."

Novacyt also provided an update on trading, saying revenue for the first quarter came in at €83m ((£72.6m). Around 50% of this was driven by sales to the DHSC, namely PROmate. The remaining 50% was driven by continued growth of international sales and expansion of its private sector testing operations.

"Given the ever-changing nature of the Covid-19 pandemic and diagnostic testing demands, the company continues to have limited visibility over future sales," Novacy said. "Whilst the directors are confident new contract wins will continue as Novacyt expands international sales and into private sector testing, they believe revenue and profit for 2021 may be lower than current market expectations due to the absence of the DHSC contract extension."

Novacyt's PROmate is the only direct-to-PCR Covid-19 assay approved by the DHSC's Technology Validation Group.

At 1530 BST, the shares were down 35% at 448.64p.