Shares in Netscientific (LSE: NSCI) have enjoyed an extremely positive week, ending it around a third higher than they started it. The reason is positive news flow released yesterday, with Netscientific announcing that PDS Biotechnology, which is a company in its portfolio, has experienced positive preliminary data for its main cancer immunotherapy treatment, PDS0101. The drug has received a strong response in tests for its use on pre-cervical cancer, with it being shown to prime and activate T-cells, which play a crucial role in the human immune system.
In fact, PDS0101 could provide a clear alternative to the removal of lesions to overcome pre-cervical cancer (which is the current practice) and, as such, the market has reacted very favourably to the news flow. And, while shares in Netscientific are down by 12% today, it is likely to be a result of profit-taking after such a superb gain in Thursdays trading session.
Diversity
Of course, Netscientifics share price performance in the months prior to the announcement was very disappointing. Its shares fell from around 166p in January to as low as 110p in April. This shows that in the health care sector it is imperative to have diversity since, especially among companies that are heavily involved in research and development, volatility can be particularly high.
As such, investors seeking a less volatile shareholder experience may be better served by investing in a medical devices company such as Smith & Nephew (LSE: SN). It may not offer the same potential rewards as a smaller, research stock such as Netscientific, but it also comes with far less risk. For example, while Netscientific remains a loss-making company that is largely reliant upon the outcome of development programmes, Smith & Nephew has been hugely profitable in each of the last five years, with its bottom line set to grow by a further 13% next year, which is around twice the growth rate of the wider market.
Size And Scale
Furthermore, Netscientific remains a relatively small company with a market capitalisation of just 60m. Compare this to Dechra Pharmaceuticals (LSE: DPH), which has a market capitalisation of 928m and it is clear that the latter has significantly greater size and scale. While it could be argued that this makes Dechra less nimble than Netscientific, it could also mean that it has more stable finances and that it is a safer long term bet. And, with Dechra having increased its net profit at an average rate of 14% per annum during the last five years, it remains a relatively appealing growth play, too.
Looking Ahead
While Netscientific has performed extremely well in recent days, it remains a relatively high risk play. Certainly, it appears to have a bright future and news flow this week has been very positive, however it seems prudent to pair it up with larger, more robust peers that offer a degree of stability in the medium to long term. As such, a combination of Netscientific, Smith & Nephew and Dechra seems to be a sound move for longer-term investors.
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Peter Stephens does not own shares in any of the companies mentioned.
