The outlook for pharmaceutical services company Open Orphan (LSE:ORPH) has never looked stronger following the announcement of a Covid-19 vaccination contract with the UK Government worth up to £40 million.
The first part of the contract will see the firm’s subsidiary hVIVO develop a Covid-19 human challenge study model. This will include manufacturing the challenge virus and the first-in-human characterization study for the virus, with completion scheduled for May next year.
In the six months leading up to June, the Dublin-based firm reported an operating loss of £5 million. However, the second half of 2020 has seen momentum grow as the company has begun to enjoy the full financial benefits of its hVIVO acquisition and its strong pipeline of contracted work.
In its half-year results, Open Orphan said it was on track to be operationally profitable in the fourth quarter of 2020. And following the announcement last week that the UK Government had paid three slot reservation payments to the firm at £2.5 million apiece for full Covid-19 human challenge study vaccine trials to be held next year, things are looking even brighter.
Each of these studies has a potential market value of between £8-10 million. This means that the total value of the UK Government contract could reach up to £40 million when an initial £10 million payment is taken into account.
hVIVO – the company Open Orphan acquired in January- has a long history of successfully delivering human challenge studies. The company, formerly called Retroscreen Virology, was first set up in 1989 as a spin out from Queen Mary University, London. hVIVO has the world’s leading portfolio of eight human challenge study models developed to date and has safely run more human challenge studies than any other company globally.
Open Orphan’s acquisition of the subsidiary was a strategic move, positioning it among the top contenders for the development of vaccines and antivirals for infectious diseases such as Covid-19.
Several companies are already seeing a boost to their share value as a result of being involved in research pertaining to the development of a potential cure for the novel virus. Most recently, Moderna, AstraZaneca, and Pfizer have all seen their value skyrocket since signing government contracts for the delivery of Covid-19 vaccines that they have in the pipeline.
The data from Open Orpha’s Covid-19 human challenge study model will be critical to the research involved in the making of the expected vaccines. Cathal Friel, Open Orphan’s executive chairman, Open Orphan, said in a statement that the company was looking forward to working with its partners to develop a Covid-19 human challenge study model which will be used to safely accelerate the discovery of effective vaccines and antivirals against Covid-19.
“We hope our work will reduce the impact of Covid-19 on individuals and communities, and our thoughts go out to the many people whose lives have been affected by the pandemic,”
– Cathal Friel, Open Orphan’s executive chairman
The company has secured funding for the entirety of the study, which will be sponsored by Imperial College London and conducted by hVIVO at The Royal Free Hospital’s specialist research unit in London, under the scrutiny of highly trained scientists and medics.
But this is not the only good news for shareholders and investors.
This year has also seen Open Orphan announce the signing of larger, more profitable contracts with both large pharma and leading vaccine developers globally.
“We have delivered upon our aim of improving revenue streams through the delivery of several new revenue lines including the provision of laboratory services to third parties. We have reinvigorated both the Venn Life Sciences business and the hVIVO business during the first half of 2020 and have created a strong foundation for future growth,”
– Cathal Friel said in Open Orphan’s half-year results.
Looking ahead, the outlook for Open Orphan looks extremely positive, fueled by the potential for the business as it enters a period of significant spending on vaccines and antivirals by both governments and pharma companies around the world.
The results from the human challenge study could clearly have a tremendous impact on Open Orphan’s future growth. As encouraging as the number of contracts the company has secured is, the upcoming months are likely to give investors a much better idea on the company’s earnings prospects. For now, Open Orphan’s valuation and substantial portfolio are two solid reasons to look at buying this stock.