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If I had a spare £1,000 I’d buy this penny stock right now!

Stacks of coins

Scancell (LSE:SCLP) is a penny stock that has recently caught my attention. The shares have increased by 21% over the past year, and by 134% since the start of 2018.

I wonder if I could double my money over the next five years?

The fight against cancer

Scancell is a biopharmaceutical company that’s developing medicines to treat cancer and certain infectious diseases, including Covid-19. The company is researching vaccines in an attempt to induce an immune response in patients. It’s also working on redirecting immune cells through the stimulation of antibodies.

According to Cancer Research UK, one in two of us will develop cancer at some stage. This frightening statistic shows the size of the potential market for Scancell’s products.

Ignoring the devastating personal consequences of the disease, cancer treatment costs the National Health Service over £6bn each year. The economic cost is estimated to be several times higher.

Progress to date

Since its formation, Scancell has yet to generate any revenue and has racked up £49m of losses.

Many of its products are undergoing clinical trials, with those seeking to treat pancreatic cancer and melanoma being the most advanced. Given the uncertainty surrounding the development of any new medicine, it’s not surprising that the directors remain silent as to when the first revenue will be earned.

The company raised £46m in 2021, and had £28m in the bank at 30 April 2022. Based on its cash burn for the last two financial years, this should enable work to keep going for another three years.

For a loss-making company, its current market cap of around £200m seems high. But this is based on its future prospects. If any of the trials are a success, the earnings potential is huge.

Pharmaceutical companies can be highly profitable. Take GSK as an example. Between 2017 and 2021, it made operating profits in excess of £30bn!

A risky business

But, investing in Scancell is not without risk. The clinical trials may not be successful.

Also, the company might need to raise additional funds to bring its medicines to market. This is often the case with companies in the development stage of growth, and would lead to shareholder dilution.

I’m also conscious of advice from Warren Buffett. He once said: “Never invest in a business you cannot understand“. I don’t have a medical degree, which makes reading Scancell’s annual reports and investor presentations particularly difficult.

I’m also nervous about getting caught up in investor hype. The company is the subject of frenzied debate on some investor forums. Several years ago, I invested in another AIM share as it was causing something of a stir. But I didn’t do my research properly, and will probably never get my money back.

What would I do?

Despite all these negative thoughts, if I had a spare £1,000 available, I would buy Scancell shares.

The company recently signed a deal with Genmab, a Nasdaq company, to licence and commercialise one of its antibodies. If successful, Scancell could earn up to $624m from the deal.

The board is also full of highly qualified individuals with wide experience of the health, biotech and pharmaceutical industries.

Imagine owning a slice of a company that helped defeat cancer. I’d love to be part of that.

The post If I had a spare £1,000 I’d buy this penny stock right now! appeared first on The Motley Fool UK.

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James Beard has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.