Human challenge study pioneer and AIM darling Open Orphan (LSE:ORPH) is set for a record-breaking 2021.
The joint London and Dublin-listed pharma services firm is now profitable for the first time and it generating large amounts of cash.
It’s been some year.
Twelve months ago, Open Orphan wasn’t even half the company it is today. It had just completed its reverse takeover of Venn Life Sciences in June 2019 and vaccine testing world leader hVIVO hadn’t joined the group yet. And – as a whole – it commanded under a quarter of its current market value.
A crucial driver has been executive chairman Cathal Friel, who continues to drive the £150m market cap CRO to new heights. The Irishman was a finalist in the EY Entrepreneur of the Year Awards. Why? Part of it is for bringing together two complementary but lossmaking pharma services firms and turning them into a group that has won the first ever human challenge study contract for Covid-19 from the UK government.
That same contract has doubled Open Orphan’s capacity, scalability and revenue base beyond its 24-bed Whitechapel quarantine unit.
“Every life sciences company on AIM has had a bump this year. Now is the time where the men will be separated from the boys. The winners will be the ones with real revenues, real profits, and a real plan.”
That’s Cathal Friel’s honest assessment. And he looks to be right.
As Covid casino stocks plummet with Pfizer’s vaccine now underway in the UK, Open Orphan is primed to burst into the spotlight.
A new decade of vaccines
Covid-19 may have been the catalyst, but we are now entering an era of unprecedented spending on vaccines, antibacterial and antiviral drugs to tackle every disease facing humanity.
Governments worldwide now want to get out ahead of the next epidemic or global pandemic.
“There will be more pandemics, more epidemics, more hospital superbugs,” says Friel. “We can test any vaccine, any antibacterial, any antiviral, so we are sitting really comfortably. And we are going into a decade of extreme expenditure in this space.”
It is this reason why the leading pharma companies on the planet have booked out Open Orphan’s London unit for 18 months in advance.
And Covid-19 vaccines offering longer-term protection will need testing. Open Orphan has the first of them already signed up in the form of the second-generation Codagenix vaccine.
“The vaccines that we have coming out now are just the first generation of Covid vaccines,” Friel explains. “The general consensus is that they will give protection for six to 12 months, nothing longer.”
“We have already started work on phase 1 for Codagenix,” he adds. “This vaccine candidate is a live attenuated vaccine; it is designed to produce immunity against all of the virus’s proteins. Live attenuated vaccines are associated with long lasting immunity of around five to seven years”.”
As the world leader in its field, Open Orphan is by far the best equipped to take advantage because of its existing capabilities through hVIVO and its ability to scale up with ease and at little cost. There will be no new white elephant quarantine units sucking up cash, Friel has assured investors.
Now scaling fast
The reason why some investors may have swerved Open Orphan to date is over fears about its scalability. One unique 24-bed unit in Whitechapel is all well and good. But doesn’t that put a hard cap Open Orphan’s revenue base?
Not now. Thanks to the UK government, says Friel.
“We have other facilities such as The Royal Free Hospital in London that’s doubled our capacity.”
And there’s more:
“Even better, we have said we will have another facility before Christmas. We haven’t said where that will be but it will be happening. So, we haven’t just doubled our capability, we have tripled it. That is really exciting, we are scaling fast and at minimum expense to the corporate because we don’t have to build on long, expensive leases.”
90% non-Covid
Open Orphan is in a unique position. Alongside the Covid-19 challenge study model it is developing for the UK Government, it also owns eight other viral challenge study models for everything from COPD, to asthma, to RSV, HRV and flu. No other company in the niche challenge study area has so much IP.
And looking beyond Covid-19 there are the multi-million-pound trials announced like clockwork once every six weeks. A £2.5m flu challenge study here. A vaccine study contract worth £4.3m there. Another £4m contract over here.
There’s a lot going on.
So much so, Friel tells us, that Open Orphan has already begun to attract governments from the likes of the US, Australia and China looking for support in their respective fights against infections.
“That’s the beauty about being a world-leader by a million miles — and being backed for human challenge studies by the British government.”
Deals are on the table to expand Open Orphan’s capabilities further, generating fresh cash far beyond what’s on today’s balance sheet. In the last six months, Cathal Friel has made grand statements about a nine-figure pipeline. And he has delivered to date.
Imutex, wearables, data
The assets at Open Orphan’s disposal are truly staggering. A Covid-19 human challenge contract with the British government worth up to £40 million is just the start.
By far the most exciting deals underway now involve cash coming back to Open Orphan shareholders. No more fundraising. It’s currently a race between two assets that the market has currently assigned zero value.
The first is the potential sale or NASDAQ spin out of non-core asset Imutex — 49% owned by hVIVO. This JV with London drug developer SEEK has the world’s only Phase 3-ready universal flu vaccine, and a Phase 2b vaccine candidate for mosquito-borne diseases.
The second is the potential for a transformational deal with wearables manufacturers — the likes of Fitbit (NYSE:FIT), Apple (NASDAQ:AAPL), Google (NASDAQ:GOOGL) or Garmin (NASDAQ:GRMN) — to license Open Orphan-owned datasets to help predict illnesses.
And we’ve not even mentioned the huge databank of disease progression data, gathered over three decades. This alone, sold to the right buyer, could surpass Open Orphan’s entire cash balance for 2020.
“Our business is actually really unusual. Most clinical trials give a drug to sick people to see if it works and it isn’t toxic. We give low-risk patients a vaccine or placebo, then inoculate them with the smallest possible amount of a virus needed to cause infection, volunteers are monitored closely and provided with the best medical care and follow up by our team at FluCamp.”
“We are the only ones who have been doing that for 30 years, so imagine the database we have built up over that period around disease progression. That is phenomenally valuable to the data companies.”
So, do you see why 2021 is going to be a record year for Open Orphan?
Friel concludes:
“We have a broad-based business that is highly cash generative, we have cash in the bank building up month-on-month. Once you’re generating cash with a pipeline growing exponentially, that’s a good place to be.”
