‘There are many unique cost synergies’ Open Orphan CEO Friel discusses pharma services firm’s merger with hVIVO (ORPH)

By Richard Mason


Open Orphan (LSE:ORPH) has revealed plans to accelerate its consolidation of the fragmented European rare and orphan drug services market by combining with its AIM-listed pharma peer hVIVO (LSE:HVO).

In a bid that would constitute a reverse takeover (RTO) under AIM rules, Open Orphan has offered to purchase hVIVO in its entirety for around 15.56p per share. This represents a premium of more than a third to hVIVO’s closing price on Friday and values the business as just under £13m. If the merger gets through shareholders (it has already been agreed and recommended by both firms’ boards) it would create a larger combined entity that would be 44.7% held by hVIVO’s shareholders.

Open Orphan has been developing a leading European service platform for pharma and biotech companies with a focus on orphan drugs since listing on AIM in June through the RTO of Venn Life Sciences. The company believes that much of the European Clinical Research Organisations (CRO) sector is fragmented, consisting of a dispersed group of smaller consultancies. The firm is using its Virtual Rep and Health Data platforms to act as a consolidator, expanding its services and unlocking cross-selling opportunities to drive revenues in the process.

Meanwhile, hVIVO is a clinical development services business pioneering human disease models based upon viral challenge studies. The firm’s clinical trial platform can accelerate drug and vaccine development in respiratory and infectious diseases.

Open Orphan and hVIVO believe that they share a similar vision for the future of the European CRO sector. Specifically, the firms see an existing overlap across some of their capabilities and customers as well as a shared focus on operational efficiency, organic growth, and targeted acquisitions.

Open Orphan also sees an opportunity for plenty of synergies between the services offered by the two businesses. Indeed, as well as cutting costs in areas like HR and IT, Open Orphan believes that hVIVO human challenge studies and laboratory services expertise complements its services. The firm sees this as an opportunity to enhance the enlarged group’s service offering while maintaining a specialist capability that can offer a competitive advantage with potential for cross-selling of complimentary services. Open Orphan also believes that the merger provides a chance to commercialise hVIVO’s database through its own health data platform.

Speaking to ValueTheMarkets, Open Orphan’s chief executive Cathal Friel elaborated on these points:

‘There are many cost synergies that have the opportunity to accelerate both companies towards profitability. There are overhead synergies- back offices, finance functions, IT, HR and everywhere. So, we will be getting rid of duplication.

‘Then there are more unique synergies. For example, hVIVO are world-leaders in challenge studies; in fact, they are the only company in Europe to provide them. These are the studies you do to test vaccines and virals and anything to do with the immune system. To get to this point, tens of millions have on building up the company’s laboratories and clinics. We are getting access to this immediately. Through our services and some of the JVs we have already agreed we can support hVIVO greatly in taking these studies towards phase 1 and phase 2 clinical studies.’

Elsewhere, if the deal passes, hVIVO’s executive chairman will become CEO of the enlarged group. Friel, meanwhile, will move to the role of executive chairman. The pair will be joined on the group’s board by Brendan Buckley, Mark Warne, and Michael Meade as non-executive directors.

Finally, Open Orphan has also announced plans to place up to 160 million new shares to raise up to £10m before expenses. If approved by shareholders, this placing will be underwritten up to £2.5m by Raglan Capital – Friel’s principal operating company. Friel tells us that this placing is designed to provide Open Orphan with a cash buffer that supports its longer-term plan of selling the company within six to 12 months:

‘We do not want to be in the middle of a sales process and run out of cash. We want a cash buffer, so we are getting the fundraising out of the way now. I am adamant this is going to be done at a substantial premium to the current market price because it is institutional led. A number of these big investors are very keen to get involved. We are going to buck the trend on AIM by raising at a premium, and that is why I have underwritten the placing myself.’


Author: Richard Mason

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