Open Orphan: Unlocking the value of non-core assets

Rising recognition of the scientific rationale and utility of human challenge studies enabled ORPH to win announced contracts worth over £30mln since acquisition of hVIVO, through Q1 2021

hVIVO contract wins and expansion of quarantine facilities

The rising recognition of the scientific rationale and utility of human challenge studies enabled ORPH to win announced contracts worth over £30mln since the acquisition of hVIVO, through Q1 2021. Challenge studies can provide a secure and contained environment in which to conduct trials of antivirals and vaccines, including for COVID-19, to establish proof-of-concept, to set dosing and to accelerate time to approval.

Commercial efforts and clinical progress culminated in October with the signing of a contract with the UK Government, to fund and develop a COVID-19 human challenge study model for an initial fee of up to £10mln to cover the characterisation study and virus manufacture, and for a potential total of up to £40mln (company guidance). This included the initial study fee, plus up to £10mln each for three challenge study contract slots reserved by the UK government, including a £2.5mln pre-paid deposit per slot.

Following the grant of ethics approval, an initial virus characterisation study was initiated in February targeting up to 90 volunteers, to determine the most appropriate dose of the virus needed to cause COVID-19 infection in a safe and controlled environment. We await completion of the characterisation study, anticipated quite soon which will determine the appropriate viral dose, which will then lead the way for the first vaccines or antivirals to be tested.

ORPH is one of the few companies globally who are able to successfully commercially manufacturer new variants of the COVID-19 challenge variant agent

With follow-on interest generated, in May 2021 ORPH signed a new £3mln COVID-19 challenge virus manufacturing contract with Imperial College London, under a Wellcome Trust-funded initiative to manufacture a SARS-CoV-2 challenge virus, to develop a challenge agent based on new COVID-19 variants. ORPH is one of the few companies globally that can successfully commercially manufacture new variants of the COVID-19 challenge agent, and this additional Wellcome Trust-funded initiative substantially broadens the target companies who may use the ORPH facilities to test new vaccines against new variants; however, to our knowledge, no one other than ORPH has successfully developed a COVID challenge virus.

Clearly, the pandemic has enabled ORPH to achieve global recognition of its expertise in developing and running human challenge studies, potentially to facilitate the next generation of COVID vaccines, to meet renewed interest in broader vaccine development.

Opening of the new Whitechapel Clinic unit was a response to the building pipeline of challenge study work

Enabling next generation vaccines

In addition to the UK Government contracts, ORPH is contracted with vaccine developer Codagenix to provide quarantine facilities to advance its Phase I study of its COVI-VAC, needle-free, nasally administered, single-dose SARS-CoV-2 vaccine. Phase I testing commenced in early 2021 at the newly opened 19-bed Whitechapel quarantine facility. COVI-VAC is being developed in tandem with the Serum Institute of India, potentially as a broader solution to vaccination that does not require deep-freeze storage. The opening of the new Whitechapel Clinic unit was a response to the building pipeline of challenge study work with its existing units at QMB and Royal Free Hospital booked out well into 2021.

The company is also generating a fast rate of new contract wins based on its eight traditional challenge study models across Influenza, RSV, HRV, Asthma, cough, and COPD and signed up over £30mln worth of contracts through to March 2021.

Contracts demonstrate buoyant demand including renewals with top three pharma companies for CMC work in vaccine development, as well as in clinical trial management, underpinning its core revenues

Venn

ORPH is driving commercial progress through the Venn subsidiary both through its early clinical development business based out of Breda, the Netherlands and via its Paris based services in data management, biostatistics, medical writing and study randomisation. This includes leveraging cross-selling opportunities and synergies with hVIVO viral challenge studies services. Announced contracts demonstrate buoyant demand including renewals with top three pharma companies for chemistry, manufacturing and controls (CMC) work in vaccine development, as well as in clinical trial management, underpinning its core revenues. Since ORPH’s takeover of Venn in June 2019 both its Paris office and Breda office are now firmly and consistently profitable for the first time in the history of Venn.

Conclusions

In our view, the current valuation of ORPH is underpinned by the rapidly growing and profitable business, the outlook for ORPH’s order book is well-supported by its non-COVID-19 human challenge study services and highlighted by its good momentum in signing contracts. A COVID-19 challenge study model is a unique and highly valuable asset with likely a lot of demand particularly with the emergence of the COVID-19 variants of the virus. ORPH stood at the end of December with a cash balance of c £19mln having become operationally profitable in Q4 2020.

In our view, the non-core assets represent upside potential from the Services business and an opportunity for the ORPH shareholders to participate in new entities via distributions of dividend in specie, and these assets are centred in fields of high commercial interest and clinical unmet need. Further detail on the timeline, and the assets to be demerged can be factors for further share price appreciation going forward.

Potential News Flow

• Completion of the COVID-19 characterisation study
• Initiation of Government-sponsored COVID-19 vaccine studies
• News about the timeline for the first spin-out, assets to be demerged and the funding of ‘ORPH Pharma’
• Financial results FY 2020.

Story by ProactiveInvestors