Open Orphan (ORPH ), half year results for six months ended 30 June 2021 reflect a period of significant revenue growth, profitability and strong outlook. Elsewhere the Company announced a new contract win worth £5.7m for an influenza human challenge study.
£5.7m Contract Win
The influenza human challenge study is expected to commence in Q1 2022 and will be conducted at hVIVO’s state-of-the-art facilities in London. The Company expects the revenue from the contract to be recognised across 2021 and 2022.
The client’s influenza antiviral product has demonstrated effectiveness in animal preclinical models of respiratory viruses and has several clinical and commercial advantages with respect to convenience, resistance, durability and compatibility when compared to similar products.
1H21 Financial Highlights
Revenue increased 242% to £21.9m (1H20: £6.4m) with other income contributing a further £1.2m (1H20: £0.7m) reflecting six active challenge studies vs two in 1H20 and a solid performance from the Early Clinical / Biometry Services division.
Gross margin expanded from 6% to 28% with 1H21 EBITDA of £2.1m (1H20; £4.1m loss) reflecting the substantial operating gearing post the restructuring and cross-functional integration completed in 2020.
Cash and cash equivalents as at 30 June 2021 were £14.9m (FY20; £19m), primarily reflecting the operating cash outflow during 1H20, with almost £9m in receivables reported during the period.
The Company has total debt of £0.3m, from a loan note structure that was exercised prior to the IPO of Open Orphan in 2019, due to be paid back in full by year end 2023
1H21 Operating highlights
The Company delivered a record volume of quarantine studies during the period, across influenza, SARS, RSV, hRV, Asthma etc., on an increasingly cost-efficient basis with all COVID-19 characterisation study activities conducted in the 19-bedroom quarantine facility in Royal Free Hospital in London.
Also, the Company is now actively engaging with a large number of the world’s leading pharma companies who are stepping up their research in the areas of infectious disease.
Two of these leading Pharma clients, Pfizer and Bavarian Nordic, even referenced the work carried out by Company’s subsidiary hVIVO, in their own shareholder updates, illustrating the important contribution made by ORPH to their own future growth.
1H21 has also seen the Company further diversify its associated services offering such as virus manufacturing and lab services, which continue to play an important role in the mix of services offered by ORPH.
In order to reward long-term shareholders, the Company also executed a share capital re-organisation as an important enabler to progress the monetisation of non-core assets via distribution of dividend in specie during the period.
The value of the distribution in specie shares for Open Orphan shareholders is £26.2m as of 17 September 2021.
The IPO was non-dilutive to Open Orphan and created substantial value for Open Orphan shareholders who received these dividend shares in a tax efficient manner as part of a HMRC approved statutory demerger, meaning this dividend in specie had no income tax liability for shareholders.
Cathal Friel, Executive Chairman of Open Orphan plc commented: “I am delighted and hugely satisfied with the fantastic turnaround and team effort by everyone in the Open Orphan organisation; they have completely transformed the business following the acquisition of both hVIVO and Venn in the past two years. These two companies are now fully integrated and, in the process, we have created the world leader in the testing of vaccines, antivirals and other infectious and respiratory disease products using human challenge studies.”
Outlook
The outlook for the Company is also particularly strong given both the infectious and respiratory disease market is seeing exponential growth, with an expected global market value of $250bn by 2025.
The Company has therefor reported a major increase in negotiations, contract wins, and repeat contract wins with Big Pharma, while also seeing increased wins from biotech companies with major deals expected to now sign in Q4 2021 driving revenue in 2022.
The Company is providing FY21 guidance of over £40m with positive EBITDA. Whilst this is below current consensus estimates, due to the delay in certain COVID-19 challenge studies., FY21 will still represent record revenues for the Company and a return to full year EBITDA with FY20 period end cash balances expected to be in-line with 1H21 at £14.9m.
Within this guidance, non-COVID-19 work expected to represent c. 70% of FY 2021 revenue mix, demonstrating the increasing diverse revenue mix the company is achieving, as per the contract win announced today worth £5.7m for an influenza human challenge study.
Looking over the longer-term, the Company is targeting FY22 revenue in the region of £50m with non-COVID-19 work, reflecting signed contracts and contracts in advanced negotiations, ongoing momentum in the core business and ongoing market growth. Any COVID-19 revenue for FY22 will be upside in this guidance and will obviously be highly dependent on timing of these studies.
The Company continues to work towards the monetisation of all remaining non-core assets and to hand these back to Open Orphan shareholders via distribution in specie allowing the Company to focus on its core offering with Disease in Motion® along with plans to monetise the Company’s 62.6% stake in PrEP Biopharm, and 49% stake in Imutex Ltd.
Cathal Friel, added; “The business is now well positioned to capitalise on the significant growth in the infectious disease market, which is due to grow in excess of $250bn by 2025 and has seen its business development pipeline grow accordingly.
With a broadening portfolio of human challenge studies, we are well placed to continue working with Big Pharma and biotech’s alike to move their products through the clinic as the infectious disease market experiences one of the largest pharmaceutical growth cycles ever, with the market expected to grow significantly by 2025. We look forward to further progress and a profitable H2 as the business continues to attract additional clients.”
View from Vox
In our opinion, these impressive 1H21 numbers are the direct result of the dynamic and radical strategic plan announced over 18 months ago; to leverage its state-of-the-art facilities, including the new 19-bedroom quarantine facility (Whitechapel Clinic) alongside the existing 24-bedroom Queen Mary’s BioEnterprises Centre facilities also in Whitechapel.
As we move into a post pandemic world, it’s worth investors noting that non-COVID-19 related work accounted for 75% of revenues in 1H21 as the Company broadened its service offering across both infectious and respiratory disease challenge studies to target the explosive infectious and respiratory disease market, which is estimated to grow to in excess of $250bn by 2025.
All this growth is likely to be capex light also, as the Company has already grown from the original 24 quarantine beds in its Queen Mary’s BioEnterprises Centre in Whitechapel in East London, by adding 19 additional beds through the conversion of the Whitechapel Hotel into the Whitechapel Clinic in addition to the increased its volunteer recruitment capacity through the opening of a new volunteer screening centre in Manchester alongside a new dedicated street level screening facility in QMB, increasing the weekly screening capacity to in excess of 520 volunteers, which is a five-fold increase over the prior years’ screening capability.
Whilst FY21 analyst expectations are expected to be paired back slightly, there remains ample capacity for double digit EBITDA growth into FY22 and beyond with the Company currently negotiating a number of significant deals and contract negotiations from repeat Big Pharma clients.
The Company also remains highly investor friendly also with its first distribution in specie back to the shareholders worth £26.5m as at 17 September 2021, in relation to the demerging of Poolbeg Pharma. We expect this trend to continue with the Company offering shareholders further opportunities to maximise their value in separate shareholdings in both exciting pharma product commercialisation companies alongside a world leading and profitable CRO.
Reasons to ORPH
Open Orphan is a rapidly growing Contract Research Organisation and world leader in the testing of vaccines and antivirals through the use of human challenge clinical trials.
The Group comprises two commercial specialist CRO services businesses, hVIVO and Venn Life Sciences and is also building out a valuable data platform business. All businesses are now working closely together to offer upselling and cross selling opportunities.
World Class Facilities
Open has Europe's only 24-bedroom quarantine clinic with onsite virology providing individually isolated rooms and specialist laboratory facilities. The hVIVO facility offers highly specialised virology and immunology laboratory services to support pre-clinical and clinical respiratory drug, antiviral, and vaccine discovery and development.
Largest Test Portfolio
Open Orphan has a leading portfolio of 8 viral challenge study models, which are: 2 FLU, 2 RSV, 1 HRV, 1 Asthma, 1 cough and 1 COPD viral challenge models. As announced in early March 2020, it is rapidly advancing several COVID-19 challenge study models and expects to be helping many COVID-19 vaccine development companies to test their vaccines.
hVIVO works with UK and Irish companies to provide COVID-19 testing to staff to protect staff and customers from a workplace COVID-19 outbreak through its COVID Clear offering.
The company announced that its first volunteer had been dosed with the Codagenix needle free, intranasal COVID-19 vaccine, COVI-VAC as part of a Phase I clinical trial of COVI-VAC currently being carried out by hVIVO, at its facility in the UK.
Rapidly Expanding Market
The market for vaccine development and testing has grown rapidly over the past six months, largely due to the outbreak of Covid-19.
However, ORPH believes Governments and International pharmaceutical companies around the world will be making enormous ‘catch-up investments’ in all types of vaccine development to ensure the effects of any pandemic can be mitigated in the future, which it said should result in the hIVO facility being booked out for months, if not years, in advance going forward.
Recent market research forecasts both the infectious and respiratory disease market is set for explosive growth, with an expected global market value of $250bn by 2025.
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