Investors are at the accumulation stage with Open Orphan (LSE:ORPH), as shares in the Anglo-Irish contract research organisation hold steady at around 12p.
Open Orphan has not seen the same staggering, meteoric rise and crushing fall as other Covid-19 plays like Novacyt (LSE:NCYT), Omega Diagnostics (LSE:ODX), Synairgen (LSE:SNG) or Avacta (LSE:AVCT). But in my view, long term, it is in a much better position than any of the above.
I wouldn’t even call these firms rivals to Open Orphan, because many of ORPH’s biggest potential money-spinners have nothing to do with Covid-19 at all. More on that below.
Executive chairman Cathal Friel recently told ValueTheMarkets.com:
“The beauty of this business is that we have a very traditional challenge study model. The RSV vaccine challenge studies are going really very well. So, the non-Covid clinical trial side of the firm is going gangbusters amid the pandemic. Then we have the Covid-19 opportunities, and they are blowing the lights out. These could be utterly transformational.”
Pharma research minnows have been making paper fortunes then breaking hearts since the start of the Covid-19 pandemic.
First came the previously mostly-ignored ‘Covid-adjacent’ penny stocks like 4D Pharma (LSE:DDDD) and Hemo (LSE:HEMO). These shot upwards on sentiment alone. When the momentum ran out, their share prices fell like a fridge being chucked off a cliff.
But with fears of a second wave of the virus now consuming the world’s media, all eyes are turning back to the Covid-19 plays with the best real shot of taking off again.
Broker finnCap — which aided ODX in an £11 million fundraise and put together a £48 million fundraise for AVCT — recently reaffirmed its 19p target for Open Orphan following the release of subsidiary hVIVO’s 100%-accurate Covid Clear test. This is the most accurate test on the market and hVIVO/Open Orphan is primarily targeting its antibody testing services directly to the large employer groups as part of getting Britain’s employees back to work safely.
hVIVO/Open Orphan are also extending this testing capability beyond antibodies alone. They are using their existing PCR antigen test equipment to offer these large employer groups a more long-term sustainable package. Combining antibody testing and Covid-19 antigen testing like this can show whether an employee is currently infected and whether they have been in the past.
Considering what ORPH have in the pipeline, I think finnCap’s 19p target is conservative at best.
A heavily oversubscribed placing on 22 May, which was 95% funded by substantial institutional investors, brought £12.6 million into Open Orphan.
The placing price of this £12.6m placing was 11p, which caused some concerns among Open Orphan’s army of small retail investors. This is because it was a 26.1% discount to the Open Orphan share price on the day the fundraising completed i.e. the 22 May.However, it is critical to note that 11p was the price when Open Orphan’s investor roadshow started less than a week.
Another important point to note is that the former Woodford legacy stake that Open Orphan acquired through its acquisition of hVIVO has been sold to Acacia in recent weeks.
It has come as something of surprise that Acacia seems to have dumped most of its stake into the retail market in London, as it did with at least 14 of the other former Woodford stakes it had acquired.
Open Orphan has said it could have easily placed this former Woodford stake with existing institutional investors had Acacia made contact with them. However, it seemed to have been their decision to place stock in the open retail market rather than engage in a placing operation with existing institutional investors in this range of companies.
But with this overhang now cleared, Open Orphan’s share price is once again free to grow at full momentum.
Beyond Covid, think Imutex
The money raised By Open Orphan will be used to bolster its balance sheet and expand its suite of world-leading vaccine clinical trial services.
There are a number of non-core vaccine product assets which the company intends to monetise in the months ahead – just check its latest investor presentation.
Among these non-core assets is a potential candidate for a universal flu vaccine: Flu-V. This was developed by Imutex, a 49% partnership between hVIVO and SEEK Group. Open Orphan investors get a little thrill every time Imutex is mentioned, and I’ll tell you why. Two reasons.
Firstly, creating a vaccine for the various strains of flu is the Holy Grail for medical science and the world’s best minds have literally been working on this for decades.
To see Flu-V succeed beyond a Phase 2b trial — with results published in no less a journal than the peer-reviewed Annals of Medical Science — is exciting progress enough.
With most countries now facing the unsettling combination of a resurgent Covid-19 as well as the annual re-emergence of seasonal flu, Open Orphan’s project could not be higher profile.
The progress of Flu-V has caused a flurry of excitement among top scientists and researchers and for good reason. One eminent scholar at Johns Hopkins University, the most-trusted research organisation in the world, told LiveScience back in May why Imutex’s progress of its Flu-V product through to Phase 3 was so momentous.
Secondly: insiders believe Imutex alone could be worth a very large sum of money. Spinning off Imutex into a high-profile NASDAQ listing could bring a hefty dividend for Open Orphan shareholders, far higher than the current 12p share price.
This is without even mentioning the mosquito-borne disease vaccine trial that is making waves by passing its Phase 1 trial, with results published in leading peer-reviewed journal The Lancet in June.
And while director deals are not necessarily a marker of future success for a company, Cathal Friel has won plaudits among ORPH investors for putting his money where his mouth is.
He has built up a 6.92% stake in the company, amassing over 45 million shares, while American multinational asset manager Invesco is the only other significant shareholder with a stake of 7.91% or 52 million shares.
Announcing year-end results on 24 June Friel noted that since the reverse takeover of Venn Life Sciences in June 2019, Open Orphan has “been building the foundations of a soon-to-be profitable business in Q3 2020”, with losses in both hVIVO and Venn “confined to the past”.
“It is clear that for the months and years ahead the development of new and novel vaccines and also the testing of such vaccines and antivirals will be one of the fastest growing areas of the pharmaceutical industry,” Friel added at the time.