March 20, 2021
Open Orphan: Covid Beneficiary with 'Rembrandts in the Attic'

You may have all seen in the news that the World’s first human challenge Covid vaccine study has been approved in the UK. I thought you may be interested to learn more about the company behind this novel and much-needed approach to fast-tracking vaccine trials so today I will tell you about Open Orphan, a company whose shares I have held for over a year. By way of background, here is a short interview with the CEO of Open Orphan, who describes the potential and need for human challenge studies in vaccines better than I can. It’s important to note this business (Hvivo) is only one part of the whole company. Open Orphan is lucky enough to have ended up with a range of very valuable hidden assets earmarked for disposal (and cash return to shareholders).


This material is not investment research in accordance with the legal requirements designed to promote investment research independence and is also not subject to any prohibition on dealing ahead of the dissemination of investment research; and as such is considered to be a marketing communication.

Covid Beneficiary with “Rembrandts in the Attic”:

Open Orphan operates in defensive growing areas within the pharmaceutical research sector that have been significantly boosted by Covid. It is just at the beginning of its profitable growth trajectory, but also owns a number of exciting and valuable ‘rembrandts in the attic’: assets earmarked for disposal (proceeds to be returned in cash to shareholders).


Source: Stockopedia
Past performance is not an indication of future results.

Company Description

Open Orphan is a rapidly growing niche CRO pharmaceutical services company that is a world leader in the testing of vaccines and antivirals through the use of human challenge clinical trials. The business was shaped into its current form through a series of acquisitions and subsequent restructuring by the current management team led by CEO Cathal Friel over the past eighteen months (see timeline of changes below).

Source of this and all subsequent slides: company presentation

The business now comprises two complementary contract research organisations in the pharmaceutical sector which have been slimmed down:


Investment Case

Dominant Market Position in a Fast Growing High Margin Niche

The attractions of the business are summarised below (NB the business is already profitable - the slide is from six months ago):


Hvivo is the undisputed world leader in Human Challenge Studies which hasten vaccine trials:


Hvivo is the undisputed world leader in Human Challenge Studies which hasten vaccine trials:


Hvivo has grown from one facility to 3 (potential for one more this year) and facilities are already booked out for 2021:


Just because there are a few approved vaccines doesn’t negate the demand for these studies (quite the opposite):


Implications of new challenge study quarantine facilities

The addition of new capacity gives the group scope to deliver on its exciting pipeline at increasing scale, with increased flexibility, lower capital intensity and more attractive pricing. The lease terms are very favourable - minimal Capex outlay, with marginal impacts to cash.

Strategically, the proximity of the new facilities to the original means the group can take advantage of the onsite specialist virology laboratory and supporting infrastructure at the original site. I expect this cost-effective and flexible operating model to provide optionality and opportunity for the Group in scheduling challenge studies across its portfolio of models and potential customers. The Group looks set to benefit from increasing industry interest in challenge studies and the ability to react to demand, and show agility to service customers should bode well, especially in expanding the reach of challenge studies to other viruses.

Valuation Upside

Business is now profitable and has huge operational gearing:


Contract wins have continued for both divisions in recent months (after the above slide):

October 2020: Venn Life Sciences won two new contracts with European pharma companies. Its Paris team will manage the randomisation and supply management for a Phase II COVID-19 therapy study, which involves 200 patients across 50 sites. The Breda, Netherlands team will assist project management, design and implementation of new clinical development processes. This contract builds on Venn’s existing relationship with these pharma companies and will run until Dec 2021.

Implications: The majority of the revenue from these contracts will be realised in
2021, supporting the £7.1m forecast for Venn Life Sciences. This news demonstrates that all aspects of the business are generating strong revenues and both securing new contracts and renewing existing customer contracts.

November 2020: Open Orphan announced that its subsidiary, hVIVO, has signed a £2.5m influenza human challenge study contract with a US biotechnology company. The study will be conducted in hVIVO’s 24-bed quarantine clinic and is due to begin in H2 2021, and is targeted to complete by year-end 2021. Venn Life Science’s Paris team, another subsidiary of Open Orphan, will complete the biometrics for the study.

Implications: The contract builds on various challenge study contract wins in RSV and COVID-19, and demonstrates the variety of the company’s service offering. It is also developing new challenge models, including malaria, bacterial infections and Pneumococcus, highlighting the longevity of growth potential beyond Covid. With both Hvivo and now Venn working on this, we can see the synergies within the Group’s activities; instead of subcontracting biometrics to a third party, that revenue is instead being retained within the Group by using the services of Venn Sciences. After recent contracts, hVIVO’s quarantine clinic was booked out until August 2021, and with this new contract the clinic is now booked out closer to December 2021.

On 22 December 2020, Venn Life Sciences announced a contract renewal with a top-3 global pharmaceutical client, to December 2021. The renewal relates to CMC consultancy services the Venn team in Breda, Netherlands, has provided to the client since 2012, for two of its vaccine development programmes. January 2021:Open Orphan’s Venn Life Sciences subsidiary has announced a further contract renewal with a top-3 global pharmaceutical client to December 2021. This follows on from the first contract renewal with this client, announced on 22 December 2020. The contracts relate to Chemistry, Manufacturing & Control (CMC) services for two of the client’s vaccine development programmes.

Implications: both businesses are firing on all cylinders, providing wide-ranging and complementary services in high demand.

Feb 2021: Venn Life Sciences has announced a second contract related to one of these vaccine development programmes. Both contracts will run until the end of December 2021.

Implication: this demonstrates Open Orphan’s ability to retain long-term clients and win repeat-business, and reinforces its position as a leading service service provider in the space.

Valuable Rembrandt in the Attics earmarked for Disposal

3 key non-core assets earmarked for cash return to shareholders. These are of material value relative to the group’s market capitalisation and although there has been a delay in the announcement on the sale of these assets (initially were supposed to be sold by December 2020), I remain confident that we will see news flow on at least one of these in the first half of this year. It’s also important to note that this delay has been against rising values in the biotech sector so will potentially have enhanced their ultimate sale values.


Key Risks

In my view, ORPH is an exciting growth business with leading market positions in a defensive sector and the valuation is further strongly supported by sizeable non-core assets earmarked for disposal.

I see key risks as:

  • Demand for Covid studies disappears very quickly (unlikely in my opinion)
  • Loss of key personnel (the key risk factor in my opinion)
  • Management becomes stretched too thin given the breakneck speed of growth (though they are taking steps to address this risk)
  • Further delays in non-core asset disposal programme
  • Downturn in Nasdaq biotech asset valuations before the sale of Imutex
  • Risk of significant adverse reaction in a volunteer in a Human challenge study (very unlikely in my opinion)


The Group became profitable in Q4 2020 and hVIVO’s very strong order book for 2021 gives further comfort on prospects. Meanwhile the stock trades on just 7x PE with continuing upside potential to forecasts from Challenge study pipeline conversion (COVID and RSV/HRV) and international opportunities. I see substantial shareholder returns in the shares as earnings upgrades materialise. As well as further human challenge study wins, ORPH is in discussions with the world’s largest wearables providers in order to commercialise its infectious disease data and is also aiming to monetise its non-core assets (49% stake in Imutex and 62.6% stake in PrEP Biopharm), and translation of these opportunities - some of which are expected in H1 2021 - adds further support to the significant upside potential in the company’s valuation.

In terms of newflow, Open Orphan expects more influenza contracts to follow and is also developing new challenge models beyond Covid including Pneumococcus and malaria and assessing options to license out its challenge agents to institutions abroad. hVIVO’s quarantine facility is booked out close to December 2021 with traditional challenge studies. The company is now a key facilitator for governments and pharma companies who wish to test COVID-19 vaccines and antivirals and it is assessing options to license its challenge agents, standard operating procedures and expertise to institutions in Australia and America.

This material is not investment research in accordance with the legal requirements designed to promote investment research independence and is also not subject to any prohibition on dealing ahead of the dissemination of investment research; and as such is considered to be a marketing communication.

Written by
Pouneh Bligaard
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