Open Orphan aiming to deliver full year profitability in 2021.
In its results for the year to 31 December 2020 (ORPH ) described the period as “an important year of transition” following its acquisition of hVIVO in January 2020.
The London-listed pharmaceutical firm said FY20 was a time for management to integrate both businesses and drive improvements in revenue, gross margin and efficient overheads.
ORPH said these efforts had culminated in 4Q20 ‘proving to be an inflection point for the business after it successfully generated both an operating profit and positive cashflow.
In light of the COVID-19 pandemic in March 2020 the Group developed a COVID-19 challenge model and partnered with the UK Government to deliver a characterisation study to understand how to use the COVID-19 virus for vaccine and antiviral challenge trials.
The company stated that this collaboration is ongoing with ‘significant progress’ achieved to enable the Group to test vaccines and therapeutics against COVID-19 in the near future.
Despite booking a loss of £10.8m in FY20 (FY19: loss of £5.7m), largely driven by project and administrative costs which rose to £32.4m from £8.7m in FY19, the group made an operating profit in 4Q20 and stated that it is aiming to deliver full year profitability in 2021.
The group said its work to strengthen business development in 2020 is ‘coming to fruition’ after it saw a significantly improved track record of major contract wins. As a result, revenue in FY20 rose to £22m from £3.5m in FY19. The company added that this ‘sets the scene’ for strong revenue growth in 2021 and in turn strong EBITDA and operating profit growth.
ORPH told investors that it is ‘very well capitalised’ after strengthening its position through two placings in 2020 raising a combined total of £17.9m (before expenses) and strong working capital management through advanced cash payments on major agreements.
As at 31 December 2020 cash and cash equivalents were £19.2m while cash as of end May 2021 was £15.1m, reflecting the expected release of customer prepayments in 1H21, which it said should build back strongly by year end as it closes contracts for execution in 2022.
Commenting on today’s published final results, Cathal Friel, Executive Chairman of Open Orphan said: "The Group is not simply satisfied to have returned to a positive operating position at the end of 2020 and to be targeting to deliver a full year profit in 2021, it is now focused to further enhance the quality of profits and earnings of the Group going forward.”
On its outlook, he added, “Therefore, notwithstanding the strategic investments we are making in new challenge models and the Disease in Motion® platform, we will relentlessly focus on cross selling our services across our broad client base, leveraging technology to drive improved efficiencies, and stripping away unnecessary cost in our operations."
Looking ahead, the group said its clinical science teams and laboratory development teams continue to address ground-breaking research projects with major pharmaceutical players. Open Orphan said it expects these services to be in ‘strong demand’ for the year ahead.
In addition, the company said its planned demerger strategy is ‘progressing well’ to date.
The Group told investors back in April 2021 that it was at “an advanced stage” of a possible spin out of some of its non-core development intellectual property assets. Addressing shareholders, the Board said it believed that the development IP assets would be ‘best developed separately from the core services business’ to maximise shareholder value.
A spin-out transaction could secure separate financial resources for the assets, enable their accelerated development and achieve commercial milestones, the Company told investors.
In a separate statement released today, Open Orphan said it would seek admission of its spin-out company, Poolbeg Pharma, to trade on the AIM, using the funds raised to meet the costs of the clinical trials costs for its flu treatment and to acquire and develop new assets.
Addressing shareholders, the company explained that its investment comes at a time when, post-pandemic, there has been an explosion in the growth of the infectious disease pharmaceuticals market, which is estimated to grow to in excess of $250 billion by 2025.
"Poolbeg Pharma is a great opportunity to maximize the potential of some of Open Orphan's pharma assets, which are non-core to our successful human challenge clinical-trial business, in a focused and capital-efficient way," said Executive Chairman, Cathal Friel.
Friel added: “In Poolbeg we have assembled a leading management team, generated an exciting pipeline of potential acquisitions and entered advanced discussions with leading AI data analysis platforms to increase the attractiveness of the Company and its offering.
Thus, I am confident and excited in the Company's prospects going forward and will be personally investing alongside incoming investors as part of the potential IPO.”
View from Vox
In a morning research note, analysts at UK broker finnCap wrote of the news: ‘Having demonstrated its ability to spin-out non-core assets through Poolbeg Pharma, we have confidence in assigning value to Open Orphan’s portfolio of non-core assets.’
Analysts introduced a 47p target price, ‘based on a sum-of-the-parts analysis, underpinned by the unique value that resides within its COVID-19 challenge model and studies.’
Also commenting on ORPH’s outlook, analysts at research firm Arden Partners said the group’s pipeline is ‘continuing to grow through interactions with key global pharma players with signed deals in 2021 already ahead of 2020, underpinning confidence in the outlook.’
In a note released today, Arden’s analysts said, ‘Our new 50p sum of parts valuation consists of £260m for hVIVO based on premium peer group multiples of 5x EV/Sales and c. 40x P/E (2021E) and new assumed valuations of non-core assets of Imutex and Prepbiopharm.’
Shares in Open Orphan have increased by nearly 40% in value since the beginning of 2021.
Open Orphan is a rapidly growing Contract Research Organisation and world leader in the testing of vaccines and antivirals through the use of human challenge clinical trials.
The Group comprises two commercial specialist CRO services businesses, hVIVO and Venn Life Sciences and is also building out a valuable data platform business. All businesses are now working closely together to offer upselling and cross selling opportunities.
World Class Facilities
Open has Europe's only 24-bedroom quarantine clinic with onsite virology providing individually isolated rooms and specialist laboratory facilities. The hVIVO facility offers highly specialised virology and immunology laboratory services to support pre-clinical and clinical respiratory drug, antiviral, and vaccine discovery and development.
Largest Test Portfolio
Open Orphan has a leading portfolio of 8 viral challenge study models, which are: 2 FLU, 2 RSV, 1 HRV, 1 Asthma, 1 cough and 1 COPD viral challenge models. As announced in early March 2020, it is rapidly advancing several COVID-19 challenge study models and expects to be helping many COVID-19 vaccine development companies to test their vaccines.
hVIVO works with UK and Irish companies to provide COVID-19 testing to staff to protect staff and customers from a workplace COVID-19 outbreak through its COVID Clear offering.
The company announced that its firstvolunteer had been dosed with the Codagenix needle free, intranasal COVID-19 vaccine, COVI-VAC as part of a Phase I clinical trial of COVI-VAC currently being carried out by hVIVO, at its facility in the UK.
Rapidly Expanding Market
The market for vaccine development and testing has grown rapidly over the past six months, largely due to the outbreak of Covid-19.
However, ORPH believes Governments and International pharmaceutical companies around the world will be making enormous ‘catch-up investments’ in all types of vaccine development to ensure the effects of any pandemic can be mitigated in the future, which it said should result in the hIVO facility being booked out for months, if not years, in advance going forward.
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