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They aren’t selling the data to them, in the same way Pfizer, Sanofi or any other pharma co hasn’t either.
With a growing array of data, you can’t mine it for insight in a simple way, so need computational models to find out what patterns exist. It’s just outsourcing to a party who has the intelligence to do that work as far as I can tell.
The current SP has very little to do with Orph’s performance in my opinion, financials have stayed pretty consistent with guidance and on a decent trajectory going forward.
If you ignore Covid stocks which have bombed(ODX, GDR etc…), health sector has fallen across the board.
RENX…often cited by CF, is down from 1100p to 300p.
Trellus…70p to 25p-ish
Oxford Nanopore…seen as the darling of the sector last year…700p to 370p
Could go one…but you get the idea…
Where I think he has been culpable is in overstating SP expectation and timescale of delivery, and therefore folks thinking it could outrun the sector downturn, which it clearly hasn’t.
Pipeline the key piece for me going forward…need greater volume of contracts landing, been too quiet Jan-Mar. If you have the capacity, need to see it filled…profit naturally follows if 12-15 challenge studies at £6-7mn can be won each year rather than the 7-8 currently.
Given LSE chat has turned into ADFVN…must be a lot of folks seeing value at this level…
Think that’s a fair assessment - find the guys at the top credible, unlike some peers, but chased the Covid opportunity to the detriment of the wider business. At current market cap, think it’s good value, a couple of binary events in the next 3 months in gov and Vatic, but beyond that, building the wider foundations for growth. Wish them well.
Had shared this with someone else earlier as I was updating FY22 expectations…given the 5p brigade are out in force…
Might be of use to some…
1) Based on us winning another 7 contracts this FY at £6mn a piece, I’ve got a revenue assumption of £64mn for FY22. 7 seems sensible/conservative given there were 5 in August-December, and Challenge agents increasing. That assumes £8mn for Venn, Covid delta characterisation at £6mn, and the remainder being challenge study revenue (phased revenues over an 8 month period from contract RNS so not all in FY22). Doesn’t assume any Covid contracts or the £10mn contracts becoming the norm. If they come off would take Orph north of £70m+ as a minimum (assuming Covid contracts skewed into FY23 revenues).
2) Costs quite difficult to extrapolate due to vagueness of figures in the annual report. Employee costs, Volunteer costs, inventories consumed straightforward, applied some economies of scale based on improved efficiency of staff (clinical staff rather than management) and also contract values increasing so increased revenue not leading to linear increase in costs. “Other expenses” was £6mn last year and not explained - I think extrader got an answer from IR which inferred it was pretty much cost of sale stuff, so assumed that increased with revenue (with a modest efficiency).
That got me to £47mn of cost this year if revenue mid-60s, so adding c £16m to an existing £17mn cash figure to get to £33mn cash as a base case by year end. If contract values > £6mn average or we land some Covid deals, upside from there.
Because the whole sector has taken a kicking…got little to do with Orph imo. Can’t think of any at this end of the market doing better than 6 months ago. Renalytix - often referenced - was 1100p…now 400p. Oxford Nanopore which was a headline ipo last year was 35% down from its high although recovered a little now. Trellus, at ipo up to 70p, now 35p… sector taken a hammering but better buying at this end of the chart than the other if the business is fundamentally strong…
Just to add to Ivys comments…
Loads of influenza vaccines (albeit not universal) and field trials but Orph still getting £10mn Challenge studies…
Position in the clinical trial process important here - speed and limited cost in ph2 creates the demand for CHIMs…prior to more expansive and costly ph3 field trials (although growing discussions about CHIMs in ph3 (see Dr Chris Chiu presentations)).
Think the Covid CHIM is increasingly likely (given pretty much exclusively positive debate), increasingly endemic nature of Covid and intervention medicines….just the timing that’s hurting…
DCR couldn’t they just consolidate shares to a level where they get well above the $1 level?
On the share buy back…agree it’s utterly bonkers given the need for cash in progressing the pipeline.
However given their ability to crank up the PR when it suits, they use $5mn to buy back now, turn up the PR in 6 months, share price climbs and then do a placing for $20mn, which gives significant working capital but GCs stake isn’t diluted any further than it is today?? (just trying to make sense of it all!)
They did have a significant spike in 2017 I think, so this cyclical approach probably isn’t new to them…
I think he’s the same 12toes/Allan Quatermain/Homeboy etc… from ADVFN…same language/narrative…
You have to own them in the first place in order to be able to sell them…
Don’t think it’s that simple JB (doubt you do either ;-) )
As we all know, it’s a very flat market as a whole at the moment, even those heavily feted have taken a hit.
I remember SBTX being heavily touted early 2021, climbed to 75p, and now trading 60% lower. Could go through DDDD, TILS etc… in sector. Outside the sector, see more of the same. GGP, 37p down to 14p…could go on, it’s a common pattern…but does suggest there is value at these levels…
Specifically with Orph, personal view - I think the majority of the reduction is symptomatic of the market at the moment, and a number of factors in that…
- There is probably a little truth in the furlough crowd as cited by Orph, but more probably…
- Improvement in FTSE dragged money back - Aim seemed to gain momentum off the back of Covid (Ncyt etc…) and now seeing more restrain.
- Crypto pulling in the get rich quick crowd
- A realisation this isn’t easy - suspect a lot of money has been lost in the last 9 months and some have packed their bags.
- Market concerns - people holding onto cash as see too much risk in the markets. Fed tapering and improving interest rates will add to that.
I do think the lack of adhering to timelines at Orph helped cause problems. Nothing wrong in my view in terms of business performance, can’t really fault it, but they could have understated and over delivered.
There is a void of investor sessions which doesn’t help - think back 12-18 months…LSE, IG, Proactive, Mello, Investormeet etc… there was one every month. If he wanted to crank things up a bit, he could, and reckon CF knows the game inside out so confident he’ll manage this side when he sees fit!
While there have been big sellers I think currently it’s just pi’s / short term trading imv. Know a few folk who need to release funds here, and will always be cash flow needs, divorce, probate, school fees, bigger house etc… which leads to need to sell (however reluctantly).
The lack of POLB growth doesn’t help. If that was 20p now I think Orph would be doing better. Realistically POLB needs significant time given drug dev timelines and is pretty binary (like Sareum, Synairgen etc…)
I try to look at the fundamentals rather than the share price, and all pretty positive there, so pretty pragmatic about it - enough upside news due, lands when it lands…
Enough positive news due, would like a trading update and 24 month strategic outlook mind…
Anyway just my musings
I’m not sure whether the pandemic falls away this year or not will have any significant bearing on the funding of CHIMs. If it raises its head with a serious mutation it stays high profile, if it becomes endemic with a milder version, easier/less risky to move into challenge studies. Most of Orph revenues come from RSV and Influenza, a mild Coronavirus would just add another string to their bow - Influenza studies will contribute 25mn ish this FY despite being endemic - still a key target for pharma.
Thanks Shandy…
For this FY if they’ve given guidance of £50mn and 90-95% committed, we know they are £45-47mn.
On top of that is the delta characterisation which is meant to be underway, which is £5-6mn so gets us to early 50’s already.
Think my £60mn is conservative as would expect private sector covid studies this FY. Not convinced by government coming through, but if not, can recognise their deposit in the accounts (for this year anyway), possibly a gov omicron characterisation (assume Orph will want to manufacture that anyway), and then any other challenge study contracts - might not all be recognised in FY22 now (assuming they start H2), but given comments around pipeline and still having capacity, even if only £20mn of contracts signed in H1 (3 studies so far from bullish), that should give £10mn into this years rev figures…
Just my thinking based on what we know…
Prefer to keep things simple…
- Revenue growing 100% last FY, 50%-ish this assuming a £60mn figure by year end.
- Borderline profitable at EBIT level last FY, but given revenue growth that will improve this FY. If you go through the full accounts and notes, looking at fixed and variable costs, you can reach a reasonably accurate view.
- Contract volume and values increasing.
- Imutex/Prep will be sold - folks will have their own view on values and timescale but they’ll spin out at some point.
- CF will sell the business.
Don’t think any of the above can be disputed really…as to what the price does tomorrow/next week/month…no idea, but as long as the business maintains its current momentum it’ll only move in one direction over the coming months…
One final point…when folks talk about trading it in the 20-24p range, you can’t then complain about the SP not breaking out of it - self fulfilling prophecy that one…
I’ve no doubt he is looking to sell Orph, and that will be this year.
We know he’s a deal maker, and also short-termist, so pretty confident he’ll get the best price he can, and from our side the right man to do it. Imagine a scientist CEO looking to sell this, at least CF has the contacts/skill set and leaves the scientists to run the Operations.
He’s currently £70k down on his recent £300k purchase, and albeit only on paper, £12mn down on where the SP was in April, so I doubt the current share price is lost on him…
As I mentioned before, if he needs to shift the share price I think he could…so lack of comms suggests he doesn’t need to or it’s too early (imho).
In terms of share price, personal view, I think they’ll be through 40p by Easter…doesn’t take a lot to change sentiment in this space (although a tough general market malaise and wider economic dynamic) but would expect the following this quarter…
1. Covid challenge study - anything in big money space will bring the herd in. Think this will be private sector not gov.
2. DiM spin out - I think this has been a lot harder to do than people think, it’s bloody complicated…and they not only need to make data usable/consumable but they need the right bodies in place - it’s evident CF doesn’t wholly get it, and that’s not a criticism. Data scientists that I work with leave me baffled, I know what I want to see, but achieving it is complex! If he pushes this out with the right messaging, and critically team, which I think he’ll do as he’s canny when it comes to getting the right skill set around him, it should create some SP momentum given the space it’s in. (with previous comments from others that the business entity comments from CF is a stalling tactic). He’s got one shot at getting funding/interest and needs to take the time to do it right (despite us lot wanting a quick buck).
3. Trading update - anything pointing to >£60mn t/o and £10mn+ EBITDA will create momentum, aided by broker notes.
4. Some sort of tie ups that come left field…whether it’s capacity, licensing CHIM IP, broader CRO engagement, who knows, but it’s not in his character to tick over Challenge study contracts.
Anyway, just my musings…better go and do the day job…
Was giving you the benefit of the doubt with your 1 post…I was wrong…
Part 2
Orph weaknesses
- Share price! Personally think it’s mainly down to AIM weakness, goes beyond the healthcare sector and bubble from 2020 has well and truly burst. Even sector darlings like REGX 50% off their highs. CF over promising didn’t help but think that is broadly history given current approach (Poolbeg comments aside where old CF approach still seems in place)
- Short termism of hotel expansion.
- Government incompetence on speed, funding and changing direction, doesn’t give confidence they’ll progress to challenge studies this FY.
- Other than Venn, short term contracts so pipeline hopper needs filling again each year.
- Juggling too many balls…seems to be in hand to change that, will be interesting to see how market reacts to him stepping back.
- Lack of comms (what CF was being criticised for overdoing is now the polar opposite). Previously had Proactive, LSE, Mello, IG etc… all stopped. In my view, he’s either not bothered about boosting SP as has end game in sight, or it’s further away than we think so no point ramping it up yet…
Pulled this together…hopefully below gives a measured view to newcomers…
Orph positives…
- Growing market opportunity. Ignoring market size hyperbole, at ground level, increasing pipeline, contract size and value.
- While possibly tarred as Covid play, lot of growth in Influenza space, which suggests as Covid goes endemic, a significant growth opportunity there from the private sector.
- Only company who has run a covid challenge study, in only country that has run a covid challenge study.
- If influenza generates c £25mn this FY, you’d expect an endemic Covid CHIM to do at least that as incremental business…(markets might not see the benefit here but an endemic Covid will be hugely beneficial to Orph)
- Endemic progression of Covid gives greater likelihood of MHRA approval for commercialisation of Covid challenge studies.
- Credibility in industry. Repeat business, strong and growing reputation. Referenced in investor presentations from likes of Pfizer.
- Increased contract values push cash straight to bottom line, benefit in 2022 figures rather than 2021 so trading update would be useful.
- Revenue growth. £22mn in FY20, c £40mn FY21, likely to be >£60mn in FY22. Current £50mn guidance for FY22 all but met, incremental £6mn due for Delta characterisation study (assuming it happens - manufactured but not a given it proceeds, given Omicron now dominant…but not sure where you stop there…).
- CF has significant skin in the game at 7%, but B Buckley also has significant holding.
- Management team very impressive, both mgmt board and NEDs. A Catchpole, L Toole, M Treacey, A Wildfire, Adam French…all come across as highly capable and well considered outside the business.
- Cash generative. No need for future funding.
- Economies of scale from revenue growth. While some costs will be direct and scale with revenue, CHIM development, management overhead, QMB costs etc… will create an economy (aside from increased price point for contracts).
- Compelling IP and technical expertise in an acquisitive, cash rich CRO sector.
- Known end point, albeit 2022 at some point.
- Prep spin out likely to be worth c 2p a share.
- Imutex (when it finally happens) should be 5-7p being relatively modest. Hvivo paid £20mn for their stake a few years back, it’s since been through ph2, increasing value. Also the ph1 completed on AGS-v Plus. If collectively these were £50mn (feels very modest), that’s 7p+ a share.
- DiM in a strong growth space and big opportunity but difficult to quantify. If we take a £25mn float plus fund raise, would give 3-4p.
- These spin off assets would be c 12p of current share price, leaving 9p on the Core business, or mcap of £60mn-ish.
- Assuming a £60mn turnover and x4 multiple, the Core could be worth 36p a share.
placing in which Hand and Yates invested heavily in…
Sea bass, if they consolidate, share price goes up in inverse proportion…so if you have 10k shares @ 15p, and they did a 10:1 consolidation, yes you’ll have 1k shares, but worth £1.50 each…
Let’s go through it line by line…just to counter the blatant errors…
1) Guarantee of repeat orders - there isn’t a guarantee, but there isn’t in most businesses…Tesco’s can’t guarantee customers will shop there next year…
However, Orph have had repeated contracts with customers over the years and various positive feedback (which has featured in investor presentations from these clients e.g. Pfizer). Don’t think repeat business is an issue…
2) MCap is 4x next years revenue - no it isn’t. As a minimum, they should be £56mn next year, most probably 10-20% higher. That’s less than a 3x multiple.
3) £15mn cash - not huge, agreed, but cash generative so it will only go one way, and investing for growth - increasing biohazard status in QMB so they can run Covid studies there, increased accreditation with a nod to US credibility, investment in CHIMs for Malaria, Streptococcus, Pneumococcas etc…all aimed at future revenue growth next FY…
Note the recent influenza win - given they are commonly 60-80 patients in a study, that’s £5m uplift on a contract that goes straight to the cash pot…
4) You’ve also failed to include Prep which is worth c£20mn, and has an imminent spin out, and then Imutex - Biondvax was at c £300mn as it started Ph3, without a huge cash pile, £20mn from memory, if Imutex was only sat at £100-£120mn prior to funding, that’s still £50mn+ to Orph…so two assets worth half their current market cap…