Looking beyond Covid for Open Orphan
“…With its substantial investment in challenge trials Open Orphan has made impressive progress in establishing itself as a go-to partner for Big Pharma in the complex process of bringing new treatments to market…”
Open Orphan (AIM:ORPH), a specialist in vaccine and antiviral testing using ‘human challenge’ clinical trials, is another bio small cap that came to prominence during the pandemic, several of which have been profiled by TMS in recent weeks, in addition to a feature length roundup in July.
The company hit the headlines earlier this year when it worked with the UK government’s vaccines task force to organise the first Covid human challenge trial, in which some 90 volunteers were deliberately inoculated under carefully controlled conditions with a version of the virus to test its impact on the immunity system. It signed a £3m contract with Imperial College London this May, as part of a Wellcome Trust funded initiative to manufacture a Covid challenge virus. Indeed, this week the company also signed a £5.1m contract with a biopharmaceutical company to test its Investigational Medicinal Product (IMP) using hVIVO’s respiratory syncytial virus (RSV) Human Challenge Study Model.
Looking beyond Covid
But Open Orphan’s ambitions extend beyond well beyond Covid, focused on a wider infectious diseases pharmaceuticals market expected to grow exponentially in the next few years. The pandemic highlighted decades long neglect of investment in fresh treatments for continually evolving respiratory and infectious diseases such as the common cold and influenza. Now, governments and pharmaceuticals companies across the world are sinking billions into new drugs generating a market forecast to grow from $20bn in 2019 to $250bn by 2025. There is particular urgency because exceptionally low infection rates due to pandemic measures such as social distancing have fostered unusually low levels of public immunity. Open Orphan is seeking to position itself as a vital partner in the fight by rolling out a comprehensive range of human challenge trial services that now encompass Covid, Respiratory Syncytial Virus (RSV), influenza, asthma, human Rhinovirus hRV, and malaria.
The company has made two transformative acquisitions in the past two years in the course of orienting itself towards the challenge trial market. In 2019 it acquired Venn Life Sciences, a drug development, clinical trial design and execution consultancy, and early last year hVIVO, which had two decades of prior experience in safely conducting challenge studies across a range of respiratory viruses. Although Open Orphan carried out its Covid challenge trials at London’s Royal Free Hospital, it has two of clinics of its own in the capital, equipped with virology and immunology facilities. The company also has screening centres in Manchester and London that allow it to screen more than 500 volunteers each week.
Open Orphan is spinning-off non-core assets to allow it to continue to sharpen its focus on challenge testing. In July, as covered in TMS, it oversaw the IPO of Poolbeg Pharma (AIM:POLB), which aims to commercialise the company’s clinical data repository. The listing was managed through a ‘dividend in specie’ process designed to ensure existing Open Orphan shares were not diluted or subject to tax liabilities. The company plans to monetise other non-core assets in similar fashion, including its Disease in Motion platform, an infectious disease progression database with applications for big tech, wearables, pharma and biotech companies, and its stakes in two other bio interests, PrEP Biopharm and Imutex Limited. Open Orphan is led by Executive Chairman Cathal Friel, who has a track record in bringing pharma companies to market, including Poolbeg, Amryt Pharma and Open Orphan itself.
A financial inflection point
As we noted in our July Covid feature, 2020 was a financial inflection point for the company, allowing it to report Q4 revenues of £22m, up from £3.5m for the previous year. It has continued to make progress in pursuit of its aim of winning new and repeat contracts with leading pharmaceutical companies. In August it signed an £8.1m contract with ‘a major global pharmaceutical company’ to test its inhaled hRV antiviral product using its asthma human challenge model. And the following month it announced a £5.7m agreement with a specialist biotechnology company to test influenza antiviral therapeutics. Earlier this week it renewed a £1.5m contract with a Big Pharma client to provide dedicated clinical pharmacokinetics support for an array of drug development programmes designed to study the absorption, distribution, metabolism and excretion of drugs within the body. Open Orphan extended its range of challenge models in August to include malaria, offering a new platform to test new antimalarial drug and vaccine candidates being developed to address the increasing resistance of malarial viruses to current medicines.
In an upbeat set of interim results for the six months ended 30 June 2021 the company said that since it turned the financial corner in Q4 2020 the business has moved ‘to a firmly profitable position with losses consigned to the past’. It delivered revenue of £21.9m, up from £6.4m in H1 2020, a 242pc increase, and an EBITDA profit of £2.1m compared with a loss of £4.1m in H1 2020, a turnaround reflecting the company’s conducting six active challenge studies as against two for the previous period. Its full year guidance for £40m revenue was somewhat behind analyst expectations, which it attributed to a delay in the commencement of anticipated Covid challenge studies, now likely to take place next rather than this year. But the company was keen to emphasis its core work beyond Covid, which is expected to account for around 70pc of its 2021 full year revenue mix, and bring in £50m in 2022. In H1 this year non-Covid related work accounted for 75pc of revenues. The company said that given ‘the strong growth trends towards infectious diseases, we expect our revenue mix to be increasingly weighted towards traditional challenge models for H2 2021 and into 2022.’ Year-end cash balances are forecast to be close in line with the half year position of £14.9m, and the company expects to pay its outstanding debt of £0.32m by year end 2023.
Outlook
Like that of other biotech small caps Open Orphan’s share price has subsided over the summer, falling from heights of 40p in April reached when its Covid profile was high, to just under 20p today, taking its market cap to around £130m at the time of writing. Like other small caps thrust into the spotlight by the pandemic the company faces the challenge of showing it can maintain and develop its position in an expanding and increasingly competitive market.
With its substantial investment in challenge trials Open Orphan has made impressive progress in establishing itself as a go-to partner for Big Pharma in the complex process of bringing new treatments to market, as evidenced by the contracts it has been able to announce over the past few months, and thereby towards realising its forecasts for continued revenue growth. With a coherent business model in place for positioning itself in a fast growing sector, it would seem that Open Orphan is somewhat undervalued at present.
