Open Orphan hVIVO merger smacks of good times ahead (ORPH)

By Patricia Miller


What does the future hold for Open Orphan (LSE:ORPH) now that the Irish drug consulting company has completed its reverse takeover of German clinical services provider hVIVO and it has beenreadmitted to trading?

In a 20 January RNS, Open Orphan chief executive Cathal Friel forecasted “substantial revenue growth and profitability” from the £28.5 million-rated merger between the two AIM-listed firms.

Shareholders certainly seemed to be getting their value for money when on 6 January ORPH announced a new three-year tie-up to “guarantee significant annual revenue” with an unnamed German pharmaceutical firm. 

Speculation that this unnamed ‘tier 1’ company was the world’s largest private pharma entity, Boehringer Ingelheim, has been neither confirmed nor denied by Open Orphan. Open Orphan reportedly has a combined pipeline of £100 million on the slate to look forward to as well.

This immediate impact appears to be a validation of Friel’s long-term business case that a larger entity is better able be able to secure longer contracts and grow more sustainable revenue for the long-term health of the business. 

In Friel’s words, this is: “Transitioning from ad-hoc short-term contracts to long-term contracts with high quality customers thereby delivering secured recurring revenues.”

And shareholders knew this was coming. Open Orphan was founded in 2017 then recreated in its current form in a June 2019 reverse takeover of Dublin-based drug clinical trials controller Venn Life Sciences. The chief executive always said he would use the combination to put the company up for sale within a matter of years.  

Open Orphan specialises in drug treatments for rare diseases. Orphan drugs are so-called because the medical conditions they treat are so rare, they are not profitable to produce at scale without tax breaks and additional government funding. 

This “once in a lifetimeopportunity could impact shareholders in the short term, especially with the upcoming fundraising plan. 

However, the fact that a proposed £5m fundraise will be up to 50% underwritten by Cathal Friel himself should provide some comfort given the positive implications this has for his long-term commitment.

Open Orphan’s longer-term outlook remains strong. hVIVO’s assets could easily represent a seven figure sum and Friel was particularly pleased about taking a stake in hVIVO’s universal flu vaccine. If that takes off in the way, hVIVO could effectively name their price. hVIVO has persisted with the FLU-v treatment and began Stage 3 trials in January, with analysts suggesting the vaccine could be worth $1 billion to the joint company when complete.

If these two companies can also work together to build the element of the business which seems to have the greatest ongoing value attached – orphan drug consulting services platform to help companies commercialise their products in Europe — then the share price could easily approach 10p from its current 6.5p level. 

As Friel himself put it to ValueTheMarkets recently: ‘I believe the combination of Open Orphan and hVIVO could make a very attractive acquisition target for the big firms out there because we are now a full services company providing a full services platform in a very dislocated and fragmented arena.’


Author: Patricia Miller

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.