The latest Investing Matters Podcast episode with London Stock Exchange Group's Chris Mayo has just been released. Listen here.
Re cash levels…
- TB CHIM
- Malaria CHIM
- Pneumococcas/Streptococcus CHIMs
- Upgrade of QMB to support elevated Biohazard status for Covid studies (I assume to support anti-viral studies)
- Improved technical accreditation (believe this is with a nod to the US to improve credibility)
The above are ones off the top of my head, which have been raised in recent presentations, and all seem eminently sensible investments…would rather they invested for growth rather than seek to build a cash pile…
However, saying cash is steady isn’t as helpful as saying cash is growing but we are investing in x, y and z …would help if they detailed their investment plans.
There is justifiable criticism of CF for being overly optimistic / using glib sound bites (share price growth etc…) / calling out imminent news that hasn’t yet materialised……but I’m quite enjoying the new approach…talk when you’ve an announcement to make and if it’s quiet in the meantime so be it (granted did revert to old CF in the Poolbeg session).
I try to take a logical view to Orph as the majority of discussions are emotive, and it still seems (to me) hugely appealing as an investment.
There are two key pieces for me…
Firstly, financial performance / market opportunity, and secondly, senior management team.
On the first…Core business trajectory is obvious.
- Aside from H1/H1 revenue growth, contracts increasing in value so cash straight to bottom line. (I don’t think influenza ones will increase as much as others but still positive)
- Demand is clearly there - I think Hvivo did 2 challenge studies in 2019, 10 this year, 15ish next excluding Covid.
- Low cost to grow (for short term growth)
- Cost management / frugality - there are no vanity projects, if it’s not linked to revenue it doesn’t happen - a little short term it’s potentially but Orph isnt going to be standalone for long.
- Market demand increasing - whether the overall market is $250bn, $150bn etc… I don’t see as relevant - its analyst views, they will vary, we don’t know how that breaks down. What we do know is that demand into Orph is growing, albeit would be nice to see 3-4 contracts land this side of Christmas to reaffirm this.
On the Management strength piece, I think this is hugely under called. See far too many plodders in SMT positions, very rare to find someone that drives change. With that there might be some bluster/bravado, but CF certainly mixes things up. Most outcomes will be positive, but will be the odd screw up. Having a bit of a maverick as a leader but a strong team behind you tends to be a winning solution.
Coupled with this is a strong work ethic (certainly can’t be questioned) and the ability to set a strong team around him.
Whether A Catchpole, A Wildfire, M Treacy, A French, B Buckley, and the non-execs e.g. E Sullivan, all seem to be highly competent individuals.
While news has been thin on the ground recently, the work in the background still strikes me as very positive.
I think any adjustment in share price is down to the price at the time - at 47p you can expect a reduction as people step back, at 20p very much doubt that will be the case (also expect price to rise leading into the spin out, from a 20p base).
If we run with the assumption that DiM will get away at £75mn (£50mn plus £25mn raised), that £50mn is 7p a share…
If Prep is worth £20mn - pretty much what they paid for it, you’ve got 2p ish there.
Imutex as mentioned before is difficult to value. Biondvax got to $600mn going through phase 3, with $20mn in cash, so mainly down to the asset.
If we ignore heady US valuations etc… and just assumed £100mn, that would be £49mn for Orph, so another 7p.
On assumptions discussed by others, that leaves the Core business at 4p…not going to happen…
Over the last four years, standard CROs have been valued at an average x3.4 of revenue (UK not US) - picked up from various credible reports e.g. Deloittes
While Mo Khan or Cathal can state it’s not a standard CRO (and justifiably), a 6-8x valuation is too bullish for me at the moment. Even taking the standard 3.4, a £40mn revenue this FY and let’s assume a modest £60mn next, puts the Core business in the £130mn-£200mn bracket, with it currently trading at the lower end of that range.
If we add the lower end 20p+2p+7p+7p, we are at 36p.
If we take the next year view of £60mn t/o, Core business would be 30p, add the others and we get to 46p which is in the range of broker forecasts.
Imutex sells for more / they beat guidance next FY / someone sees greater value than industry standard, upside on this…and naturally impact downwards if any of these aren’t delivered.
IMHO
Busy week, thanks for the detailed response Earache…only had chance to look at the motley fool article, will look at the others this evening…
On the motley fool article…he’s completely muddled…
“Completing Phase II and Phase III trials will be a multi-year process during which many things can go wrong. To make matters worse, there are currently 32 other competing influenza Phase II drug trials and a further 16 already in Phase III. Needless to say, the competition remains fierce. And with no other medicines currently in its development portfolio, Poolbeg looks quite risky as an investment in its current state.”
Poolbegs’ lead drug is a therapeutic, treating illness, cytokine storm scenario again, but different pathway - will it prove effective, who knows…but it’s not an influenza drug treatment/vaccine.
His view on the number of influenza drugs in development may be accurate, but suspect it covers vaccines and therapeutics and also aren’t universal in nature as per my note last week (think he’s mistaking Poolbeg and Imutex) .
Briefly on the Biondvax piece, that was aiming to be a universal vaccine so competition for Imutex not POLB - different market. From memory Biondvax was around £50mn market cap, but climbed to 250-300mn before phase 3 failed - climb started after ph2 success confirmation but also tied in with whole Covid ramp in 2020 so difficult to tell how much of the growth was attributable to which factor, hence difficult to value Imutex…
This was a public service announcement on behalf of the bear party…
Re Orph, no one (to do with the company has said next year) - last word from CF was that they’ll all be done by Christmas and DiM ready to go…do I think they’ll squeeze all three in the next two months, probably not, but you cant just make stuff up stating nothing till next year…and pitch it as fact.
On the wider point, markets may adjust, but UK not exactly flying, FTSE where it was 20 years ago…US a different matter, but even then most analysts not forecasting an adjustment beyond 10% which would still leave the Dow and Nasdaq above precovid levels.
Hi Earache,
Just been going through your last note - I’m ignoring the back and forth bb comments, don’t want to add fuel to that fire, distracting enough as it is, but wanted to see if you could clarify something please?
(Earache) There are currently 32 other much more recently developed universal influenza drugs actually in Phase II trials and 16 already in Phase III.
(Q) Do you have details of these you could share? As far as I know, Imutex is the only ph3 ready universal vaccine candidate. We know Biondvax failed, Vaccitech ph 2 failed. While Novavax Nanoflu and Medicago have developed quadrivalent variants at ph3, my understanding is that they target the head (easier to mutate) rather than the stalk (Imutex) which limits their effectiveness and doesn’t make them universal. Inovio is ph1, Vaxart Flugen ph1, Vivaldi ph2a, Altimmune’s Nasovax I think is ph2a and seasonal rather than universal…I’ve tried finding others but with no luck.
Re POLB-001, is an Immunemodulator, works as a therapeutic rather than as a vaccine.
I know Hvivo did further development work 2018, as to appetite of acquisitors, think we would all be speculating, depths of complex science that one. I don’t think phase has a huge bearing though, see ph 1 completions, 2a, 2b ready devs being acquired frequently and success rate risk factor is a given in the sector, you know you’ll miss far more often than win…
This was in the 14th July RNS
Completion of CHIMagents acquisition
Separately, and further to the Company's announcement of 15 July 2020, Open Orphan announces that it has completed its acquisition of CHIMagents Limited. CHIMagents was established to assist in the design, manufacture and testing of challenge agents for use in challenge studies. The CHIMagents team have been working alongside the
Open Orphan team since July 2020 supporting the design, manufacture and testing of both new challenge agents and the Company's industry leading portfolio of existing challenge study agents.
Bloody cut and paste - you get the idea of where I’m coming from :-)
Hi Extrader, my understanding of timings from what has been said…delta strain is being manufactured by Nov/Dec to support characterisation study on Delta (alpha done, just awaiting report which seems likely early Nov based on comments from Dr Chiu). I’m assuming they’ll continue manufacturing it to support private sector anti viral trials next year and challenge studies post characterisation. Characterisation for delta would be Jan-May(ish) and CF has already mentioned that they’ve agreed c £5-6mn on top of the non-Covid £50mn for next FY from the characterisation work in H1, so timing for H2 to start running challenge trials seems realistic, although frustrating.
May also be why he is talking up anti viral work which could run off alpha characterisation?
Key part for me in the Telegraph article was the number of enquiries and ramping up the biohazard element of QMB to support Covid trials outside of Hi Extrader, my understanding of timings from what has been said…delta strain is being manufactured by Nov/Dec to support characterisation study on Delta (alpha done, just awaiting report which seems likely early Nov based on comments from Dr Chiu). I’m assuming they’ll continue manufacturing it to support private sector anti viral trials next year and challenge studies post characterisation. Characterisation for delta would be Jan-May(ish) and CF has already mentioned that they’ve agreed c £5-6mn on top of the non-Covid £50mn for next FY from the characterisation work in H1, so timing for H2 to start running challenge trials seems realistic, although frustrating.
May also be why he is talking up anti viral work which could run off alpha characterisation approval which should be imminent??
Number of enquiries around Covid would suggest market is more anti-virals / therapeutics.
Other key element of Daily Telegraph article was the ramping up the biohazard element of QMB to support Covid trials outside of Royal Free - only logical reason for spending (and CF is frugal) is if QMB is going to support Covid studies. Would also explain need for another hotel as need to take non-Covid work out of QMB and support it elsewhere.
Didn’t want to bite but couldn’t help myself…think your comment was intentionally inaccurate..,
(Q) Where is the growth? Once the assets have been off-loaded where does it leave the company.?
Answer - a rapidly growing CRO. Under Hvivo, had 24 beds and couldn’t fill those, as only had 40% occupancy.
Now have 43 beds plus royal free for three years, full occupancy, plus proven model of adding hotel space for non Covid contracts, and seeking more. Spinning round a hotel costs £1.5m, rent modest, ave contract value of £5-8mn…can run c 4-5 a year. Feels like good growth to me, also achieved H1/H1 growth of 240%, suspect your comment was intentionally misleading.
(Q) I think Nasdaq is a red herring dangled to shareholders as they believe its access to fortunes and companies being valued at insane values.
Answer - I don’t think Orph will exist in its current state this time next year. ConservBio, US focussed, Prep into US SPAC, Imutex -US gov/private sector tie up probable (hoping as a sale), NEJM, WSJ, NYT articles…media focus has switched to US…I think it will go Nasdaq but as broader US tie up…I don’t think it’s looking at being an ADR set up, just personal view…
Imutex harder to value…strong credibility in having Flu-v ph2 done with Unisec consortium in EU, and NIADH/NIH engagement. Flu-v 003 done with 175 adults, and follow on Flu-v 004 showed reduce disease, symptom and viral load.
FDA meetings to agree confirmation of remaining development pathway being done through ConservBio. Then have AGS-v 1b complete and AGS-v Plus ph1 in 2019/20 conducted with NIH, so strong, credible channels.
Re valuation, if we take Biondvax, they were c $60mn USD pre-Covid, but also prior to sign off on ph2, so difficult to see to what extent the climb in Q2 last year was attributable to moving into ph3 vs market momentum. At its peak, it hit $600mn, and with cash if just $21mn at end of 2019, most of that value is in the IP.
Given Imutex is ph3 ready…pick a number between $100m and $600m, personally look at lower end but still significant.
Taken from Biondvax SEC filing 2019..,
Biondvax SEC filing 2019
our competitors currently include large fully integrated pharmaceutical companies such as Sanofi-Pasteur, GlaxoSmithKline, Seqirus (Ex bioCSL and Novartis flu vaccines), AstraZeneca and Abbott (Solvay) as well as companies and academic research institutes in various developmental stages attempting to develop improved influenza vaccines, such as Imutex, AltImmune, Inovio Pharmaceuticals, Inc., FluGen, Inc., Medicago, Vivaldi Biosciences, Vaccitech, and Vaxart.
Influenza Vaccine Candidates in Development
To our knowledge, there are a number of companies and academic labs attempting to develop new influenza vaccines. Our information as to the identity of our competitors, the nature of the competing product candidate and the development stage of such competing product candidates relies solely on publicly available information that we are aware of. The following is a summary of known competitors and competing product candidates:
Imutex Limited, a joint venture between SEEK, a privately held UK-based company, and hVIVO PLC, is developing a vaccine based on six specific peptides to induce cellular immunity. In 2011 SEEK published Phase 2 challenge clinical trial results in 28 people which indicated that its vaccine stimulated the immune system and was found to be safe. In April 2016, it was reported that SEEK and hVIVO invested approximately $20 million to create Imutex, a startup with a “Phase 2a ready” universal flu vaccine candidate. In March 2018 and January 2019, Imutex reported their Phase2b challenge trial achieved the primary endpoint of a statistically significant reduction in mild to moderate influenza.
Just adding comment re the spin offs…difficult to gauge value, but given both are looking like landing in the US that helps with values being at the upper end.
Prep is probably easier…
Just looking at PrepBio…doesn’t feel far off
CF mentioned the previous week re SPAC in the US …(a nod to Eskers for finding the Revelation Biosciences/Petra Acquistions tie up in the US (see below) and their reference to Prep-001 in their SEC filings (competitor reference…I think)).
? Revelation Biosciences has three developments, but in their infancy. REVTx -99 is due to run ph2 viral challenge study and ph1 proof of concept. REVTx-200 is an intranasal immunomodulator, REVDx-501 is a point of care diagnostic.
? Petra is the SPAC, with $73mn cash, merged business valued at $128mn, giving $55mn as Revelation value so c. £40mn.
? I think CF has mentioned Prep will have some other bolt ons when it splits, so comparable, but is further advanced than the Revelation Bio Immunomodulator on their lead product, having completed phase 1b/2a for both treatment of Influenza and Non-Influenza Upper Respiratory Infections.
? Expectation is that Prep is also going the SPAC route into US. If we assume same valuation at £40mn x 62%, gives £25mn, or 3.5-4p a share.
- From memory, Hvivo paid £14mn for their stake and was also a linked challenge study at the same time, so could have been higher. Since then, undertaken further clinical trials to increase value and also market values should be increasing given current situation. A £25mn valuation of the Orph stake feels lower end, so may be upside potential on the 3.5-4p?? (IMV)
Don’t really get the comments here today…
I’m not seeing any risk personally…risk was there at 40p…not at 20p…just a waiting game imv
Yes it’s frustrating (extremely), but the risk has reduced with the SP reduction.
I originally bought into the company at 15p before an 11p placing…it had no cash, limited revenue, under utilised assets, small contract values, no covid CHIM…etc….
Might hit 19p, probably won’t, but given well researched analysis, it’s a bit of a no brainer isn’t it?
Imho…
Good notes Sky,
A few thoughts…
- Agree with you that current SP doesn’t carry the spin offs - wasn’t the case 6 months ago imv. Average CRO multiples against revenue is x3.4, based on valuations since 2017. Based on expected £40mn t/o this year, that sees us to current market cap (excludes spin offs, growth trajectory and any moat for capability/IP). However, sentiment obviously plays a huge part and significant news flow needed to turn the momentum to the upside…
2) While DiM is expected to be next quarter, they are talking up Prep and Imutex as possibly Q4, and R Huston changing role, known discussions in the US and increased talk of sale suggests there is new momentum there.
3) I’m expecting / hoping for 4+ contracts in the next couple of months…key part for me is (i) Valuations - need to back up contract uplift values, would back up direction and speed of growing profitability, and (ii) Anything in QMB as a private sector Covid Alpha study (Codagenix?) would be great news, and a momentum shift…
Anything else (Malaria, TB, increased capacity, SGS commercial agreement, etc… would be a nice upside.
Imperial College conference tonight / tomorrow - Dr Chiu presenting tomorrow so will be interesting to see what he says re Covid…
Other think Aquae of course is Imutex and Prep - the latter doesn’t seem far off and with assumed move to US SPAC, no idea on costs - but must be sucking up some cash.
I was unsure on that one too Aquae…there are a few thoughts that came to mind after Monday’s presentation…but only personal opinion…
1) CHIM development- Malaria, TB, Pneumococcas
2) Covid lag - spending but not seeing significant revenue yet
3) Additional site / site conversion - mentioned additional 9 beds in Whitechapel clinic, and assuming this will be done this FY.
4) Leo mentioned about further pharma accreditation’s etc… I assume that costs…got the impression they are wanting to build greater credibility, whether that is with one eye on the US market?
5) Main one for me is DiM - personal view, to take raw data and commercialise it - bring in data scientists (or outsource) to make it usable, create database environment, portal / user interface, licensing structure etc…, I think is costly… now it might be that it is all done post split, but my view is that this is going on in the background now…to RNS about the capability a few months back is a bit odd if you aren’t now developing it, it must be taking significant investment to bring to life…
As I say, just my musings…
Hi Aquae,
My basic understanding…not sure if it helps…
1) A site costs £1.5m to convert, I know CF has mentioned it’s paid by others, let’s assume it isn’t.
2) I thought I’d seen a rent figure of £30k a month - someone correct me, if you disagree.
So c £2mn for the two above, worst case.
3) Staffing wise, they have approx 200 staff at the moment, if we assume 50 staff per incremental site at fully loaded salary of £60k, £3mn there.
4) Running costs - difficult to establish - but if we use FY20 accounts…Inventories, PPE, Volunteer costs, agency costs etc… c £2mn increment.
That gets us to £7mn.
If they can run 4 studies a site per annum at conservative £6mn (I know we’ve seen higher), that gets us to £24mn. Even if costs above are out by 50% it should be comfortably profitable.
As per my note this am, this business imv is dependent on increased contract values (would have been tighter at £4mn a contract), and more so being well utilised - partial utilisation at Hvivo of old @ 40% is what crippled it. Pipeline doesn’t appear to be an issue so good utilisation, decent contract values and then achieving scale from costs like screening centres, CHIM development, IT etc… “should” only see it moving in one direction, imho…
Deepjoy drops in for a chat at the low 20s trying to eek out an extra penny off the share price - did the same last time it was 21/22. I’d take it as a positive sign…if there wasn’t value to be had he wouldn’t be here…
Hi Strictly, this is the characterisation study, started March (I think), recently completed - aim was to get an understanding of optimal dose to initiate infection, so was done with small cohorts, differing dose repeated over time. Think this has now been approved, but not seen mhra confirmation yet. However, that was for the Alpha variant. This is now due to be repeated for the delta variant. Hvivo currently producing the agent (May RNS), should be available Oct/Nov. They’ll the start a characterisation study on that, assuming January, and that relates to the £5mn Covid spend next year more or less confirmed above the £50mn non-Covid.
Then it comes to the Challenge studies which follow the characterisation work - my assumption is that the government will want to do that off Delta, given it’s the dominant strain, so that might not start until Delta characterisation signed off in Q1 - should be a lot quicker as most of the issues re contentious to run them all done and dusted with Alpha.
Interesting but is whether in private sector, studies can start earlier - CF mentioned they can use QMB for Covid studies, and would expect interest from pharma especially around anti virals to want to test against alpha, which could start earlier.
Also led to believe Prep and Imutex progressing quickly…the latter I think will land left field in Q4.