Open Orphan’s (LSE:ORPH) exec chair has said he “could not have been happier” with the pharma firm’s recent £5.3 million placing, claiming the proceeds could even allow it to turn over a profit in the current quarter.
Speaking to ValueTheMarkets, Cathal Friel highlighted the fact that the raise – completed last week at 6.1p a share – was oversubscribed, completed at a premium, and engaged swathes of institutional investors.
“Meanwhile, we did not upset any retail investors as we made them fully aware of the placing ahead of it taking place, allowing them to be involved,” he added.
The placing follows the merger between Open Orphan and its peer hVIVO into an enlarged entity that continues to carry the Open Orphan name. With the deal taking just 38 days to complete from the first offer to complete merger, it marks the fastest takeover on the London Stock Market in seven-and-a-half years.
Friel said the proceeds would be used partly to complete the rationalisation of the two companies to enable the combined group to reach profitability by “the end of the first quarter or at the latest the second quarter”.
“Both groups were loss-making, particularly hVIVO, so a part of the placing proceeds will be used to continue cutting costs through a rationalisation of shared functions and via other means until breakeven has been reached. This is vitally important to us,” he said.
To recap, among other functions, Open Orphan provides pharma customers with a range of services including initial pre-clinical consultancy services through to running pre-clinical trials, Phase I, and Phase II clinical trials.
Meanwhile, hVIVO is a market leader in the provision of human challenge studies to establish early proof-of-concept for respiratory and infectious disease treatments. In layman’s terms, human challenge models provide disease insights and – critically – a first indication of the efficacy of new products in vaccines and virology
Part of the rationale behind the merger between the two businesses was the fact that their services complement each other. Before the deal, hVIVO was unable to advance the drugs it tests beyond the challenge study stage despite considerable demand because it lacks the facilities to complete pre-clinical trials and Phase 1, and Phase II clinical trials. With Open Orphan being able to conduct all of these trials, the two firms saw an opportunity to combine their services and offer an expanded service to hVIVO’s existing clients and also pursue larger new contracts.
Friel says that, in December, just weeks into negotiations between Open Orphan and hVIVO, the latter company was able to go back to three existing challenge study customers and now offer additional services including CMC, Phase I, Phase II, Data and Statistics. In the past, hVIVO was never able to offer these services to existing customers despite regularly being asked. The enlarged group will use part of the proceeds from its recent placing to build up yet more revenues by taking advantage of more of these types of opportunities:
“hVIVO has a really sticky business model because it is a world leader in virology challenge studies. However, it has continually turned down work in the earlier preclinical and phase I trials and also had to turn down phase II clinical trials work that they get offered to do once the challenge study is completed, because, prior to its merger with Open Orphan, hVIVO did not have the capability to provide these clinical study services. On the other hand, we have never had enough work in those areas despite being able to service them – particularly phase 2 trials which are £10-£12 million contracts,” he said. “The two companies fit like a glove, and we will be pursuing new contracts and developed contracts with existing hVIVO customers moving forward.”
Finally, Friel said that the global outbreak of the Coronavirus could produce a significant opportunity for Open Orphan in Europe as pharmaceutical customers rush to develop a vaccine for the ailment. The deadly virus first reached the continent towards the end of last month, when the three cases were identified in France.
“Coronavirus is very interesting for us. hVIVO is a virology specialist that specialises in testing viruses and vaccines. It has Europe’s only 24-bedroom virology quarantine unit, , and it also has the largest stock of virology challenge study models which are critical for running challenge study clinical trials,” he said. “We do not have a cure for coronavirus, but what we do have will increase the usage of both our laboratory and our quarantine facilities. There is going to be a huge demand for virology expertise and demand for access to quarantine clinic and even more importantly, businesses will be spending more money on vaccines that we can trial. These facilities have been under-utilised for some time, but that will change very rapidly.”
Elsewhere, in the videos below, Friel talks to Proactive Investors and BRR Media about Open Orphan’s future and the potential role it could play in the treatment of the coronavirus. Joining him is Professor John Oxford, company advisor and the founder of hVIVO. Oxford has been a leader in the field of vaccine and anti-viral clinical trials for the last 20 years.