Specialist clinical research group hVivo (HVO) has revealed in a trading update that revenues for FY 2022 are ahead of expectations at £50.6m, delivering EBITDA of £7.6m, ahead of finnCap’s estimate of £7m.
That implies EBITDA margins of “not less than 17%” well above finnCap’s anticipated 13-15% range and significantly higher than the 7.4% reported in FY 2021. The improvement in profitability has been driven by the operational leverage brought about by strong top line growth, as well as operational efficiencies that allow it to deliver multiple studies simultaneously.
The company also ended the year with £28.4m in cash, and said that as a result it intended to start shareholder distributions, details of which would be announced alongside full-year results. Along with the strong trading news, that lifted the shares by as much as 18% in early trading.
The strong performance was driven by a growing recognition by large pharma and biotech companies of the value of the unique human challenge studies that hVivo offers. As the global leader, the company is picking up new contracts – such as recent first deal in Asia Pacific £5.2m – and extending its relationships with existing customers.
That’s driven the year end orderbook to £76m, 65% higher than a year earlier and meaning 95% of 2023 revenues are now covered, with visibility extending into 2024. Chief executive Mo Khan recently told Vox that as well as focusing on the delivery of the backdrop, the company was planning to launch further human challenge models this year to further increase its sales opportunities.
“With the increasing prevalence and severity of infectious and respiratory diseases, there is a vital need for new vaccines and antivirals; as the human challenge partner of choice to the global biopharma industry, hVivo is well placed to continue to help accelerate the development of these important new medicines," said Mr Khan.
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These strong figures demonstrate that hVivo is on its way to becoming an indispensable part of the drug discovery process for infectious diseases, with its human challenge models allowing large pharma groups to de-risk the research process by improving efficacy and time to market.
That ‘moat’ is shining through in the numbers – although a forecast 2023 PE of 22x can hardly be considered cheap, it’s justified by the group’s demonstrable ability to not just pick up new contracts, but deliver them without increasing its cost base, which means further margin improvement is likely. And the massive order backlog is a major comfort factor for shareholders.