Investor Forum July 2020: Poised for profitability

ORPH has developed into a specialist pharmaceutical services group through the acquisitions of Venn Life Sciences (Venn LS) and hVIVO, to become a world leader in the testing of vaccines and anti-virals. The original strategy was to build a company generating sales of €40m-€50m within two years, which it looks set to achieve. The enlarged entity has a broad and complementary portfolio of services for its pharmaceutical customers and is on the cusp of reaching profitability. Cost savings and new contract wins should see ORPH turn profitable by the end of fiscal 2020. COVID-19 has brought an unexpected opportunity for the company.

• Strategy: ORPH is a contract research organisation (CRO) offering specialist challenge tests to pharmaceutical/biotech companies for the development, among others, of new vaccines and anti-viral drugs. This positions it well for the emerging virus risk management stemming from the COVID-19 pandemic event.
• Acquisitions: The past 12 months have seen significant change, with the reverse merger into Venn (June 2019), followed by the acquisition of hVIVO, to create a broad and complementary offering to its enlarged customer base. Its 24-bed quarantine facility is best-in-class for vaccine and virus-related development.
• Funded to profitability: Both its challenge study activities and laboratory services divisions are close to covering the fixed and variable costs, i.e. on the cusp of breakeven, which is being accelerated through cost savings and new contracts. The recent funding (€14m) has provided the necessary working capital.
•  Risks: OPRH is a fast-growing company with an ambitious management team. Despite the significant activities of the past 12 months, the company is likely to take further opportunities should they arise in the fragmented European CRO market. These are likely to require further share issues.
• Investment summary: ORPH has made great strides to deliver on its inorganic growth strategy to develop profitable CRO with a broad service offering. Forecasts reflect the expectations for the enlarged entity, but do not include anything for the COVID-19 challenge model opportunity, which could be substantial. Despite this, ORPH is set to report good profits in fiscal 2021.