On Thursday 9th July 2020, Hardman & Co held our first virtual Investor Forum as an online webinar for investors.
The event, normally taking place as a physical evening presentation in central London, has adapted with the changing times to great effect. Benefiting from both a wider geographical reach and logistical ease for attendees, our highly engaged audience more than doubled in size from previous forums.
Open Orphan was one of four companies presenting over the webinar, with a management presentation followed by a lively Q&A session featuring questions from both investors and Hardman analysts.
Here, we transcribe that Q&A (edited for concision).
Let’s move on to our final presentation today, which comes from Open Orphan. It is a relatively newly created niche contract research organisation, which is a world leader in testing vaccines and antivirals through human challenge studies. It is actively involved in the fight against COVID-19. We are fortunate to have with us the founder, serial entrepreneur, and Executive Chairman Cathal Friel.
The first question is: have you any idea when Acacia might be out of the stock?
We don’t. We keep bidding them. I spoke to them last week, I rang him up, the gentlemen that’s in New York, and he said that he has all the selling done. We know he has a small amount left. He was rather unusual, he had 14 stakes of all the Woodford, he gave them to Berenberg, just dumped on the market, and Berenberg has refused to take bids. He just seemed determined to keep dripping them out. There has been a lot of stock traded, so he must be nearly gone, but he’s not quite gone yet. But, it should be pretty soon.
Could you reiterate your long-term objectives for the company, in terms of building and selling or building and building?
I said earlier in January that if we could get revenues of 30 million and get three times revenue, get 80 or 90 or 100 million, it would sell out. Before Acacia started dumping their shares, we had 100 million market cap, so I don’t think we’re going to sell at the current market cap. Every company should be up for sale, particularly with this Imutex asset sitting there. So, step one, let’s try to sell or monetise Imutex. Step 2, naturally, I believe this company could be worth a market cap of several 100 million within 12 months. Like another company I founded, Amryt Pharma, which listed on the NASDAQ yesterday. I kept cracking the whip for the management team there, saying we’re going to sell, we’re going to sell. Amryt now has a market cap of over 300 million, and has 200 million in bonds. So, when you pass the 3 or 400 million market cap mark and have substantial daily liquidity, the urgency to sell goes out. So, my plan, absolutely, would be: the exit is still there, the exit point has just got substantially larger. I think if we deliver half of what we feel we will deliver in the next four months, then the exit multiple should be substantially bigger than any we had previously expected.
Can we just spend a couple of minutes on COVID-19? Is AstraZeneca engaged in your challenge study model?
Unfortunately, we are precluded from talking about anybody, but I would say, bear with us until early September and a lot more might be revealed, and people might be very pleasantly surprised as to who and what is in. But the best way to look at it is that some of the big pharma companies won’t bother with the challenge study, they’re rushing out, trying to do a phase 3. Most of them are talking to see how quickly we can do a challenge study, so that’s where we are. I think we will have way more orders potentially than we could ever supply, so we’ve been picking and choosing. We’re trying to get between 8 and 10 million per study, and if we could get 8 or 10 within the next 12 months, we would be very happy.
So, if I can ask a more general question, what are the key characteristics of your business that attract the larger pharma companies?
The key characteristics would be that there are two companies doing challenge studies – ourselves and SGS. They are based in Switzerland, they are 20-billion-dollar Swiss company. Basically, one of our former employees, Adrian Wildfire, left five years ago, went to SGS and created a competitor overnight. They did give us a hard time. The good news is that Adrian’s back, and part of the reason he and the team is coming back is that SGS is a 20 billion company and really doesn’t want to be messing around with COVID-19. It’s risky what we’re doing, but it’s exciting, we can help humanity, we can advance COVID-19 vaccines by years, bringing them to the market quickly and, more importantly, if we are getting 10,000,000 per study and we do 8 or 10 of them, then it going to be hugely profitable. So, it’s nice to be doing something really good but also very profitable. So, we have no competitors for what we’re doing, which is rather unusual.
Could you outline the milestones required to develop a COVID-19 challenge model, and provide an update on what stage you’re at and a projected completion date? Given this challenge model is a prerequisite for significant sales revenue, could you outline any risks preventing completion?
Very simply, a challenge model is that you’ve got to get a version of the virus working that you can control and apply. So that’s called getting the characterization study. We are on the way. We’ve got to get MHRA approval, we’ve got to get ethics approval, and then we have got to make sure it’s safe. So, all we can say is that, on average, it takes 2 years to do this, and we are trying to do it in six months. We started it formerly 6-8 weeks ago and add another four months. However, the beauty in what we’re doing is that we can get a very large upfront order, for our challenge studies we get in 20%/30% in cash, so once we are ready to take orders, we will be announcing them and some of the upfront cash amounts will be substantially bigger than deals we have signed before. So, the plan would be, those trials will be starting around the year-end. But, they can happen quite quickly, and we can run a number of them together at the same time.
Okay, shall we move away from that and onto another topic, so Imutex – what’s happening? Is the research team intact? Is it dormant? Is it waiting sale? Is it waiting to go on a NASDAQ listing? There are several questions of that sort around that particular topic.
Richard, I think page 20 is still up on the screen there, hopefully, which covers that. We are monetising the non-core vaccine product portfolio, mainly Imutex. We are seeing strategic plans underway, and subject to agreement by the Seek Group, could include sale for cash, and the beauty is it’s got some cash and we are spending no more money on it. If we can’t sell a vaccine, a universal influenza vaccine company and a universal mosquito vaccine company, well I would use an Irish saying, that if you can’t do that, then you couldn’t settle life belts on a sinking ship! I’m just saying that it won’t be that hard to monetise Imutex. Some of these companies, I’m still blown away about how much we can do in four months, and sometimes previous management teams did less in years; but, Imutex is definitely top priority as we speak. As part of that, we will have a dual strategy: you can’t go around saying you’re for sale, you’re for sale, in case you might frighten off buyers so you have to Plan B. The Plan B is that we’re also looking at reversing into a NASDAQ-listed SPAC, that’s a special purpose vehicle with cash, because we think that could get a very high valuation. So, run the dual strategy over next couple of months, and as we get into the autumn, whichever one is the highest best price for shareholders. If it gets IPO’d via the SPAC, we’ll do a dividend specie to all Open Orphan shareholders, myself included. That means, later this year, Open Orphan shareholders will hold a share in Open Orphan and equally a share in the Imutex-listed vehicle. But, ultimately, a nice simple trade sale, cash in the bank, which we divvy out would be the simplest route.
There’s a lot of questions on PrEP Bio as well.
PrEP Bio: we own 62% of, likewise, if we’re doing the SPAC, we’d roll that in, or we might have an option of putting that into another separate vehicle as well.
Your acquisition policy at the moment is?
Done! We acquired two companies and then, being straight, it was reasonably hard work. hVIVO was the best deal I’ll ever do. I’m 56, I started working as 16, this is well over my 40th year working but this is obviously acquiring hVIVO has to be the luckiest deal in my life. It just keeps on giving, mind you the previous shareholders did invest 113 million Sterling in the business the previous five years, we bought it for 13. It came with 2 million cash, so it keeps on giving. We have to be careful; we just want to steadily now start monetising parts of it, growing the share price, making sure it’s profitable and making sure it remains a world leader in the vaccine trials and testing.
Well, I’ve summarised as best I can most of the questions and we are actually right on the nail for time; so thank you very much indeed, it’s been tremendous talking to you.