Contracts, Revenue, Cash in the Bank and now an exciting new look for Open Orphan
“…A company recording impressive revenue growth is Open Orphan. Its flexible challenge test model continues to secure new contracts for the treatment of an ever wider range of diseases. At this low price ORPH is one to watch this autumn and into the new year and remember to find the company under the HVO ticker after 26 October…”
Open Orphan (AIM: ORPH), the biotech small cap specialising in vaccine and antiviral testing using ‘human challenge’ clinical trials, has continued to record robust progress this year, building a £70m order book exceeding its £60m market cap. Can the company – soon to be renamed hVIVO – sustain its impressive momentum into the new year?
ORPH was one of the cluster of biotech small caps to make headlines through the first months of the pandemic, working with the UK’s vaccines task force to organise the first Covid human challenge trial, in which volunteers were inoculated under carefully controlled conditions with a version of the virus to test its impact on the immunity system, showing that a SARS-CoV-2 human challenge is safe in healthy young adults. The trial helped ORPH develop an infection challenge model able to serve as a ‘plug and play’ platform for testing new Covid variants.
But Covid is just one of the infectious diseases which ORPH is working to combat. The pandemic highlighted the world’s chronic neglect of investment in fresh treatments for continually evolving respiratory and infectious diseases such as the common cold and influenza. Chastened by Covid, governments and pharmaceuticals companies are sinking billions into new drugs generating a market forecast to grow from $20bn in 2019 to $250bn by 2025. There is some urgency: exceptionally low infection rates due to pandemic measures such as social distancing have fostered unusually low levels of public immunity. ORPH is seeking to establish itself as an indispensable partner to Big Pharma by rolling out a suite of human challenge trial services for diseases including Covid, Respiratory Syncytial Virus (RSV), influenza, asthma, human Rhinovirus hRV, and malaria.
The company has built the foundations for its challenge trial infrastructure on the basis of two transformative acquisitions. It bought Venn Life Sciences in 2019, a drug development, clinical trial design and execution consultancy, and in 2020 hVIVO, a challenge trial specialist with some 20 years experience safely conducting trials for a range of respiratory viruses. ORPH will complete its transformation on 26 October by changing its name to hVIVO plc, a brand that still has strong global recognition for its accumulated human challenge expertise: look out for the new ticker HVO and website www.hvivo.com. Venn Life Sciences will continue to provide complementary drug development consultancy services, allowing the company to offer a comprehensive end-to-end early clinical development service.
ORPH has two London clinics equipped with virology and immunology facilities, and screening centres in the capital and Manchester allowing the company it to screen more than 500 volunteers each week. Earlier this year the company announced it was opening a new volunteer facilities in the two cities that will double its screening capacity, allowing it to offer both Phase I and Phase II vaccine field trials, PK (pharmacokinetics) studies, bridging studies, and patient trials (as opposed to healthy volunteer human challenge trials).
The company is led by Executive Chairman Cathal Friel, who has a track record in bringing pharma companies to market, including Poolbeg Pharma and Amryt Pharma as well as ORPH; and CEO Mo Khan, appointed earlier this year, who led global business development at contact research organisation Pharm-Olam, generating significant growth and securing a successful sale in 2017.
ORPH builds its order book
ORPH’s high profile through the pandemic allowed it to touch what it called ‘a financial inflection point’ in Q4 2020, reporting revenues for the quarter of £22m, up from £3.5m for the previous year. Since then the company has energetically pursued an ambitious strategy of winning new and repeat contracts with leading pharmaceutical companies, seeking, in ORPH’s words, to strengthen its position as ‘a partner of choice to the global biopharma industry’, in which it counts ‘four of the top 10 global biopharma companies as regular repeat clients’.
Over the past year ORPH has signed significant contracts encompassing RSV, influenza, and Covid, with revenues set to be recognised across H2 2022 and FY 2023. The company has consolidated its presence in the RSV market, signing a £5m human challenge study contract in March with a European biotechnology company to test an intravenous antiviral candidate using the hVIVO RSV Human Challenge Study Model. In May ORPH was awarded a new study with an existing Big Pharma client to act as a vaccination site for Phase II analysis of the client’s RSV vaccine candidate, expected to begin in Q3 2022. And the following month the company signed a £7.2m contract with a top five global pharmaceutical company to test its orally administered antiviral product. The RSV study will begin in June 2022, with revenue to follow next year.
May also saw ORPH sign ‘a substantial contract’ with another top five global pharmaceutical client, for the manufacture of a virus for use in human challenge studies, work expected to be completed by end of Q3 2022. The following month the same client awarded ORPH a £14.7m contract for an influenza characterisation study and a follow on influenza human challenge study. The study is expected to start in Q3 2022, with revenue recognised across 2022 and 2023. ORPH secured two other significant influenza related contracts this summer, signing a £6.2m contract with a US-based biotechnology company to test its antiviral candidate, and a £10.4m contract with a top five global pharmaceutical client to manufacture a new batch of the H1N1 influenza challenge virus, the third challenge study for which the client has used ORPH’s services.
ORPH further extended its range of services in June by signing an agreement with NASDAQ-listed Vaxart Inc to develop the world’s first Omicron human challenge model, designed to test the efficacy of Vaxart’s oral vaccine candidate. Virus manufacturing activities will commence immediately and are expected to complete by Q4 2022, with Omicron human challenge studies to take place next year. The contract follows ORPH’s move into the vast malarial treatment sector with its first malaria challenge trial last year – a disease responsible for more than 200 million cases and 600,000 deaths a year. Results are expected later this year.
In other developments, ORPH underlined its commitment to ‘best in class quality systems’, noting the award by the US Food and Drug Administration of Breakthrough Therapy Designation to Bavarian Nordic’s RSV vaccine candidate, developed with the assistance of an ORPH trial. A Breakthrough Therapy Designation is designed to expedite the development and regulatory review of medicines designed to treat a serious condition. Earlier this month ORPH reported that two of its clinical laboratories have been awarded accreditation by the College of American Pathologists, the world’s largest organisation of board-certified pathologists and a leading provider of laboratory accreditation and proficiency testing programmes. The recognition follows ORPH’s Good Clinical Practice for Laboratories accreditation from the Medicines and Healthcare products Regulatory Agency.
Outlook
ORPH’s momentum is reflected in the company’s most recent set of interim results for the six months to the end of June. Revenue for H1 2022 was £18.9m, down from £23.2 for the previous year, but its order book of signed contracts was around £80m at the beginning of September, as against £25m for H1 2021, allowing it to reiterate its full year revenue guidance of £50m. ORPH achieved double digit EBITBA profit margins for the first time, of 12.1pc, up from 8.9pc for H1 2021, a key goal for the company following its first full year of EBITDA profitability last year. EDITBA for H1 2022 growth was 10pc, at £2.3m (H1 2021: £2.1m). ORPH is targeting an EBITDA margin of between 13-15pc for the full year. The company remains well capitalised with £15.9m cash as at 30 June 2022 (2021: £14.9m) and net cash of around £20m going into September.
Despite ORPH’s continued progress the company’s share price has yet to recover from the sell off that engulfed the biotech sector earlier this year, sitting at just over 9p at the time of writing, down from 24p at the start of the year. The trend is exemplified by the fortunes of the NASDAQ Biotechnology index, which has fallen almost a third from the all-time high it touched 12 months ago. But some asset managers with expertise in the sector are positioning their funds for a turning of the tide, believing prices have fallen too far relative to the best firms’ drug development prospects and cash levels: many good companies have been sold off along with the more speculative, dumped by ‘tourist investors’ who bought during the pandemic in pursuit of quick profits. Blackstone, Carlyle and Apollo have all taken significant stakes in biotech, reflecting the sector’s mainstreaming as an asset class. Demand is going nowhere: indeed there is growing evidence that Covid has made the world’s population more susceptible to illness. One Financial Times feature reports that clinicians and health leaders believe ‘they are coping with a higher burden of disease in the population – whether from the increased susceptibility to serious illness after Covid, or from the lingering, little understood impact of long Covid, or a backlog of patients.’
Biotech, then, continues to offers opportunities for investors willing to do the research necessary to pick the right companies. ORPH may be one, a company recording impressive revenue growth as its flexible challenge test model continues to secure new contracts for the treatment of an ever wider range of diseases. At this low price ORPH is one to watch this autumn and into the new year. But remember to find the company under the HVO ticker after 26 October!
