Hvivo Investors - HVO

Hvivo Investors - HVO

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Hvivo Plc HVO London Ordinary Share
  Price Change Price Change % Stock Price Last Trade
0.25 1.16% 21.75 09:47:35
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Posted at 08/2/2023 18:53 by yump
staverton

Its a mystery why some stocks seem to gather a very enthusiastic following and others with equally or much more realistic exciting prospects, seem very quiet.

However this is ADVFN and it goes quiet at weekends, which may be a clue. Tradability is definitely a factor.

Used to be inhabited by a fair few investors, but many have gone elsewhere.

Over the last 10 years, the stocks that hit the most frequently posted about leaderboard, seem to have a boom and bust profile, which ties up very well with the gambling, twitter following rabble, that move around like those starlings that feature in the wildlife programs.

Posted at 08/2/2023 17:41 by sikhthetech
njb,

"the share price is trending upwards, which draws in more retail investors/traders."

Exactly. Then there's a rush to exit, leaving those who bought recently holding the shares for months or years or they lose the lot..the gang with their multiple ids entice more in... rinse and spin..


Where's all the II buying within 3 months?
Where's CEO's buys 'soon'?



sikhthetech - 07 Feb 2023 - 13:57:51 - 1822 of 1886 hVIVO plc - HVO
Institution buying..

FIVE months ago, this poster posted the CEO said IIs will be buying with 3 MONTHS.

He also claimed the CEO said he'll be buying.

Where are the IIs and CEO buys?

Wololol - 12 Sep 2022 - 13:01:01 - 5349 of 5589 OPEN ORPHAN-INVESTORS THREAD - ORPH
In the interview last week chairman said institutions would be buying in within 3 month. Also CEO said he's going to be buying shares soon so lots of catalyst in pipeline amongst other news on the strong pipeline.

Posted at 08/2/2023 17:16 by njb67
Parob, possibly but much more likely is that this is retail investors. Hvivo has issued good results, it has been tipped by a number of popular stock pickers, and the share price is trending upwards, which draws in more retail investors/traders.

As far as I can tell, there are few if any institutional shareholders and none with a disclosable holding. If a company was viewing this as a takeover target, it would likely be very difficult to build up a significant holding without driving the share price up dramatically. It would be cheaper for them to agree a takeout price at an acceptable premium to the current share price.

Posted at 08/2/2023 14:39 by sikhthetech
Can someone post where are all the IIs buying rns? Where are all the CEO buying rns?


sikhthetech - 07 Feb 2023 - 13:57:51 - 1822 of 1886 hVIVO plc - HVO
Institution buying..


5 months ago, this poster posted the CEO said IIs will be buying with 3 months.

He also claimed the CEO said he'll be buying.

Where are the IIs and CEO buys?



Wololol - 12 Sep 2022 - 13:01:01 - 5349 of 5589 OPEN ORPHAN-INVESTORS THREAD - ORPH
In the interview last week chairman said institutions would be buying in within 3 month. Also CEO said he's going to be buying shares soon so lots of catalyst in pipeline amongst other news on the strong pipeline.

Posted at 18/1/2023 09:18 by troutisout
Got an invite to the Investor Meet event for next week, both POLB and HVO have done a lot of work on their PR and IR, hats off to both teams, the capital markets days have definitely seen some interest in the shares from both investors and pundits who have tipped HVO or POLB. Long may it continue, the questions answered by POLB this week were excellent and put paid to a lot of 'concerns' put forward by some. Let's hope the trading statement here next week will also be positive and backed up with the Investor Meet event in the evening for some more meat on the bones...
Posted at 10/1/2023 08:20 by sev22
Profit from this fast-growing contract research business.

Simon Thompson highlights a specialist contract research organisation testing infectious and respiratory disease vaccines that has been winning a raft of contracts.

January 9, 2023
By Simon Thompson

*£5.2mn contract with global biotech company in Asia Pacific
*11 contract wins since start of 2022 worth £70.6mn
*95 per cent of 2023 revenue estimates already contracted

This could be a pivotal year for hVIVO (HVO:14p), a rapidly growing specialist contract research organisation (CRO) in testing infectious and respiratory disease vaccines and antivirals using human challenge clinical trials, providing early clinical development services for a broad and longstanding client base of biopharma companies.

Building on decades of experience, hVIVO is currently the only CRO focused on challenge studies, providing expertise and capabilities in challenge agent manufacture, a unique portfolio of established human challenge models to test a broad range of infectious and respiratory disease products, and specialist drug development and clinical consultancy services through its Venn Life Sciences subsidiary.

hVIVO’s portfolio of human challenge study models for infectious and respiratory diseases include a recently established Covid-19 model, and several new models, such as one focused on malaria, to address the dramatic growth of the global infectious disease market. The group runs challenge studies in London from its Whitechapel quarantine clinic, its state-of-the-art Queen Mary BioEnterprises clinic with its highly specialised on-site virology and immunology laboratory, and its newly opened clinic in Plumbers Row.

Trusted partner.

As a trusted partner to the global biopharma industry, growth is being mainly driven by hVIVO’s market-leading competitive position as well as increasing demand for human challenge services in what is a rapidly expanding infectious and respiratory clinical trials market. To date, the group has completed more than 60 human challenge studies, inoculating more than 3,500 volunteers, and boasts four of the world’s top 10 biopharma giants as active clients. Contract momentum is building strongly, the latest win being a £5.2mn contract with a major client in Asia Pacific, the eleventh award and the eighth challenge study contract win since the start of 2022. In aggregate, these 11 contracts have a combined total disclosed value of £70.6mn, up from £48.3mn reported in 2021, giving a further boost to the record £80mn backlog of contracts that hVIVO reported in early September.

Furthermore, around 95 per cent of FinnCap’s current-year revenue estimate of £54mn is already covered by contracts, thus massively de-risking analysts’ estimates which point to both pre-tax profits and earnings per share (EPS) rising by more than a third to £5mn and 0.7p, respectively. It also means there is potential for earnings upgrades if the ongoing momentum is maintained, as seems likely. However, the shares are attractively priced even without upgrades.

Stripping out last year’s estimated closing net cash pile of £18.8mn (2.8p a share), the shares are priced on cash-adjusted price/earnings (PE) ratios of 16 (2023) and 14 (2024), hardly exacting for a business that is expected to deliver 60 per cent cumulative EPS growth over the 2022-24 forecast period. Moreover, that cash pile is expected to build to £22.8mn (2023) and then £26.9mn (2024) as highlighted by projected free cash flow yields of 4.7 per cent (2023) and 6.5 per cent (2024). On this basis, the cash-adjusted PE ratios drop to 15 and 12.5, respectively.

Attracting investors’ attention.

The strong earnings visibility, impressive contract momentum, operational leverage and rock-solid balance sheet are starting to attract investors’ attention, hence why hVIVO’s share price has risen 50 per cent since I initiated coverage (Alpha Research: ‘Ride the boom in vaccine research’, 17 November 2022). A chart break-out above the November high (14.5p) looks a real possibility, and would be a bullish signal worth following, opening the door to a run up to my conservative looking target price of 19p, well below those of Liberum Capital (21.6p) and FinnCap (44p). Buy.

Posted at 09/1/2023 16:49 by parob
Surprise surprise!Another Simon Thompson investors chronicle tip just out!Through 15p tomorrow?hTTps://www.investorschronicle.co.uk/ideas/2023/01/09/profit-from-this-fast-growing-contract-research-business/
Posted at 23/12/2022 09:37 by sev22
This is the detailed report that featured in the Investors Chronicle a month ago without the tables, charts and diagrams.

I have decided to re-circulate it for all genuine investors who are serious about investing in hVIVO.

The share price has almost returned to the level it was at when Simon Thompson first tipped the company as a strong buy for 2023.

Alpha small company research.

17 November 2022.

Ride the boom in vaccine research.

A fast-growing specialist in human challenge clinical trials for infectious and respiratory disease vaccines has been winning new contracts that support a surge in profit.

Simon Thompson’s view:

‘There has been a material increase in pharmaceutical research and development (R&D) activity in infectious diseases during and after the Covid-19 pandemic. However, there are still only 26 infectious diseases that are preventable by available vaccines, according to the World Health Organisation. So, given the costs involved, and the fact that the vast majority of vaccine programmes fail, the drug industry is striving to get smarter in the way it develops vaccines. One way to mitigate risk is to conduct human challenge clinical trials as part of the development process. It’s a buoyant niche business that is driving huge demand for the services of one below the radar small-cap company. For good measure, its shares are materially undervalued.’

Bull points:

1. Strong contract momentum
2. 2023 order book covers 88 per cent of budgeted revenue
3. High repeat revenue
4. Blue chip client base
5. Contract size increasing
6. World leader in challenge studies
7. Only full-service provider in the field
8. Experienced chief executive to drive growth phase
9. Cross-selling opportunities
10. Potential spin outs of legacy investments
11. Merger and acquisition (M&A) target
12. Free cash flow improving

Bear points:

1. Potential competition from larger players
2. No guarantee of pipeline of contracts converting
3. Low institutional following

Contract research organisations (CROs) provide outsourced research support services to the pharmaceutical, biotechnology and medical device industries on a contract basis. In the wake of the Covid-19 pandemic there is an explosion in demand for these services as developers of vaccines seek to work smarter.

It has been a pivotal year for hVIVO (formerly Open Orphan), a rapidly growing CRO that specialises in testing infectious and respiratory disease vaccines and antivirals using human challenge clinical trials. It provides end-to-end early clinical development services for a broad and long-standing client base of biopharma companies.

Building on decades of experience, hVIVO is currently the only CRO focused on challenge studies, providing world class expertise and capabilities in challenge agent manufacture, a unique portfolio of established human challenge models to test a broad range of infectious and respiratory disease products, and specialist drug development and clinical consultancy services through its Venn Life Sciences subsidiary.

Established in 1989 as a spin-out from Queen Mary University, London, hVIVO has leveraged its insights in established human disease challenge models in influenza (Flu), respiratory syncytial virus (RSV) and human rhinovirus (HRV), to expand the use of viral challenge in further respiratory indications including asthma, and chronic obstructive pulmonary disease (COPD). Its history dates back to the UK Common Cold Unit in Salisbury, which ran human challenge studies from 1946 until 1989. The facility was a former military hospital that was donated by Harvard University and began human challenge studies to try to find a cure for influenza.

hVIVO’s portfolio of human challenge study models for infectious and respiratory diseases includes a recently established Covid-19 model, and several new models, such as Malaria, to address the dramatic growth of the global infectious disease market.

hVIVO runs challenge studies in London from its Whitechapel quarantine clinic, its state-of-the-art QMB clinic with its highly specialised on-site virology and immunology laboratory, and its newly opened clinic in Plumbers Row. To recruit volunteers and patients for studies, hVIVO leverages its unique clinical trial recruitment capacity via its FluCamp volunteer screening facilities in London and Manchester which have access to more than 250,000 volunteers. These newly opened facilities have expanded the scope of the business to enable Phase I and Phase II vaccine field trials, pharmacokinetic (PK) studies, bridging studies, and patient trials as part of large international multi-centre studies.

In addition, the group’s Paris and Breda offices have over 25 years of experience providing drug development services such as biometry, data management, statistics chemistry, manufacturing and controls (CMC), and medical writing to third party clients, as well as supporting the London-based challenge studies.

Strong contract momentum.

As a trusted partner to the global biopharma industry, growth is being mainly driven by the group’s market leading competitive position, as well as increasing demand for human challenge services in what is a rapidly expanding infectious and respiratory clinical trials market. To date, the group has completed over 60 human challenge studies, inoculating more than 3,500 volunteers, and boasts four of the world’s top 10 biopharma giants as active clients. The value it offers to its clients can be seen by the increasing size of the contracts being awarded. Only three years ago, the average contract award was worth £3mn-£4mn, whereas this year the group has signed three contracts worth more than £10mn in revenue.

Since the release of interim results in early September, hVIVO has announced a massive £13.4mn contract with a US biotechnology client, a repeat customer, to test its respiratory syncytial virus (RSV) antiviral candidate using hVIVO's established RSV Human Challenge Study Model.

The Phase IIa double-blinded placebo-controlled human challenge trial will take place at hVIVO’s specialist quarantine facilities in Whitechapel and will evaluate the efficacy profile of the antiviral against RSV infection. The study is expected to commence in the third or fourth quarter of 2023, with the revenue being recognised in 2023 and 2024. As part of the study, hVIVO will recruit healthy volunteers through its dedicated volunteer recruitment arm, FluCamp.

The contract is the tenth award and the seventh challenge study contract won this year, which have a combined total disclosed value of £65.4mn. It means that the record £80mn backlog of contracts that hVIVO reported in early September has increased further.

Brokerage FinnCap estimate that 88 per cent (£48mn) of its 2023 revenue estimate of £54mn is already contracted through the order backlog; as well as 21 per cent (£12mn) of its £59mn revenue estimate for 2024, thus materially de-risking analysts’ earnings estimates.

Typically, around 50 to 100 volunteers are recruited to a challenge trial, inoculated with the challenge agent (virus) and placed in quarantine for 10 to 15 days. They are then discharged and receive outpatient follow up visits. It’s a very cost-effective way for large pharma to develop their RSV vaccine candidates. That’s because the $10mn-plus cost of a challenge study represents a fraction of the total cost (typically well over $100mn) to take a vaccine candidate through to Phase III trial.

There are ethical advantages to human challenge trials, as they subject far fewer volunteers to the vaccine candidates. For instance, a Phase III trial of a RSV vaccine candidate could involve the costly recruitment of upwards of over 50,000 participants. This becomes of major significance for research into complicated diseases like malaria, where studies have shown that less than 10 per cent of preclinical vaccines progress to Phase III clinical evaluation and so there are many potentially effective vaccine candidates in need of testing.

Without the use of a preliminary challenge experiment, large malaria vaccine trials would be the only alternative. This would expose large numbers of people to many ineffective vaccines in less supervised conditions and with treatment less available than for human challenge studies. As all vaccine candidates pose a certain degree of risk, more people would be placed at risk of rare, serious side effects of ineffective vaccines than would occur in human challenge studies, which involve far smaller sample sizes.

The raft of contract wins this year highlights hVIVO's world leading expertise in its field, its ability to execute sizable contracts and the industry's renewed focus on developing new treatments for RSV. The group also continues to see growing demand for larger challenge studies from both new and existing clients as they seek greater clarity of data and pursue lower frequency endpoints to de-risk their programmes ahead of later stage field studies.

Challenge studies offer considerable insight into the development therapeutic in terms of appropriate dosing, timing of dosing and most relevant endpoint. In turn, these outputs allow the pharma company to optimise its Phase II and III field trial programme, thus increasing the probability of success, lowering the overall cost and accelerating the development timeline. It also allows early decision making to terminate vaccine candidates that are unlikely to be successful in Phase III trials, underpinning the “succeed fast, fail early” mantra.

Although vaccines are amongst the most effective public health interventions against infectious diseases, the time to develop a new vaccine is long and the probability of success low, with an estimated development time of at least a decade and a market entry probability of only 6 per cent. Both the time and the costs associated with the development of new vaccines through the phases of safety, immunogenicity (the ability of cells/tissues to provoke an immune response) and clinical efficacy are often prohibitive.

Therefore, carefully conducted challenge studies can offer substantial value by providing insights into host-pathogen interactions, determining host factors that contribute to infection, and identifying immune correlates of protection against infection/disease (how the immune system acts as a biological defence to protect against infection caused by foreign invaders, such as viruses). In turn, this can accelerate the development and testing of vaccines and diagnostics for infectious diseases. Challenge studies also provide information on vaccine efficacy, protection against specific pathogen strains, and resistance in a small number of volunteers. They are valuable for diseases, too, where animal models are poor predictors of the disease in humans or when the disease is sporadic and a Phase III clinical trial is not possible.

Growing CRO market opportunity.

Importantly, the global clinical CRO market is in a high growth phase with analysts at Results Healthcare predicting compound annual growth rate (CAGR) of 10 per cent through to 2024 - when it could be worth $62.2bn.

They also highlight the following key factors driving growth in the market:

● Robust funding environments, particularly for emerging biopharma.
● Rising costs for product development which stimulate the need for lower capital costs
requirements and flexible outsourcing models.
● Demand for accelerated development timelines and quicker routes to market.
● Globalisation of clinical trials which creates a demand for improved reach and access to patients.
● Expanding scope of CRO solutions and technology.
● Requirement for therapeutics expertise to address complex and chronic disease areas.

Although pharmaceutical companies continue to invest in research & development (R&D) globally, the returns from drug R&D have been decreasing. As a consequence, large pharma has steered towards outsourcing more of their pharmaceutical research, development, and manufacturing activities to CROs or CDMOs (Contract Development and Manufacturing Organisations) as this can be a more flexible and cost-efficient approach, compared to keeping these capabilities in-house.

Results Healthcare also notes that this outsourcing trend, as well as the greater number of drugs in development, has contributed to rising penetration of outsourcing partners in the global clinical and pre-clinical trials market. For instance, the global CRO penetration rate was 34 per cent in 2014 and this is expected to account for almost half of the total clinical trial market next year.

Despite the advancements made in recent years, there are still only 26 infectious diseases that are preventable by available vaccines, according to the World Health Organisation. Interestingly, for industry-sponsored drug development programmes, respiratory infections were the most actively researched vaccine category, accounting for more than a third of all vaccine development programmes, in 2020 and 2021. This highlights how well placed hVIVO is within the vaccine space with its challenge platform model portfolio.

Accounting for 8 per cent of the total clinical trial market in 2021, analysts at Global Market Insights predict the infectious disease segment could be worth $5.5bn by 2027. Of course, challenge studies still only represent a small and nascent segment of the broad CRO market, which after the Covid-19 pandemic is now receiving significant attention. Although difficult to assess the challenge study market, Liberum Capital estimates there are around 20 challenge studies conducted each year. Some of these trials are by academic institutions.

Using the prevailing average contract size of £6.7mn (based on hVIVO’s order book over the last two years), this indicates £100mn-£135mn of challenge study work each year, excluding any additional income through manufacturing and validating bespoke challenge agents. The market currently comprises three industry competitors – hVIVO, Swiss-based SGS SA and WCCT Global – and academic institutions.

hVIVO is the clear industry leader, having conducted 30 per cent of all challenge studies in 2021, up from a low to mid-teen per cent market share over the prior decade. Using the broad CRO market as an underlying annual growth trend and factoring in the 3 per cent growth rate in the number of infectious diseases therapeutics, Liberum estimates the challenge study CRO market could be worth £130mn-£170mn by 2024 and potentially £175mn-£240mn by 2028.

Research from Pharmaprojects and Citiline highlights that the number of active vaccine, anti-viral and respiratory compounds in development increased by 86 per cent from 2019 to 2021, another positive tailwind for hVIVO given the increasing penetration that outsourcing CRO services now plays in vaccine development programmes.

hVIVO also benefits from a major competitive advantage that acts as a barrier to entry to would-be rivals. Namely, the regulatory differences between geographies. That’s because challenge agents are not viewed as an investigational medicinal product in the UK, so there is no need to submit to the regulator. However, in the EU regulatory approval is required for the challenge agent and in the US, an investigational new drug application must be submitted.

The numbers highlight the group’s increasingly dominant share in this niche market. Around 60 per cent of hVIVO’s current order book relates to biotech customers and the balance relates to big pharma, with the group carrying out three active challenge studies for big pharma in the first half of 2022 and two full-service challenge studies with values exceeding £25mn. Moreover, hVIVO has signed up eight challenge studies with big pharma companies since 2018 and all the big pharma clients are repeat customers. Also, Venn Life Sciences (hVIVO’s complementary consultancy business) boasts an eye-catching 80 per cent level of repeat business from its biotech clients.

Venn Life accounted for 16 per cent of group revenue in the first half of 2022, and Hvivo’s management has been making strategic hires to expand the division’s service offering. It is also exploiting cross-selling opportunities, landing a £5mn RSV human challenge study contract that stemmed from Venn Life’s work on a client’s early clinical development programme.

hVIVO’s management views the Venn Life business as a key driver of the business, targeting growth in new areas including Advanced Therapy Medicinal Products (ATMP). These are medicines based on genes, tissues or cells.

Improving financials.

Backed by a bumper order book and having booked £9mn of group revenue in July and August 2022 (so after the half-year-end), house broker FinnCap expects the group’s hVIVO division, which carries out the challenge studies, to grow revenue from £29.4mn last year to £42.5mn in 2022 and account for 82 per cent of its total revenue estimate of £51.1mn (up from £39mn reported in 2021). Furthermore, taking account of challenge study contract wins, revenue from Venn Life, laboratory services and non-challenge studies, the brokerage estimates that £53mn of its 2023 revenue estimate of £56mn is already covered.

The growth is not at the expense of margins as brokers anticipate group gross margin to expand from 31 per cent (2022) to 33 per cent (2023) and 34.7 per cent (2024), while double-digit revenue growth is forecast to outpace an 8 per cent anticipated increase in operating expenses in both 2023 and 2024.

A rising gross margin in a positive sales cycle, with overheads well managed, sets the foundation for a high proportion of incremental gross profit earned to be converted into both Ebitda (earnings before interest, taxation, depreciation and amortisation) and operating profit: hence why the brokerage forecasts pre-tax profit of £3.6mn (2022) to rise to £5mn (2023) and £6.3mn (2024). On this basis, FinnCap expects earnings per share (EPS) of 0.49p (2022), 0.67p (2023) and 0.81p (2024), implying the shares are being rated on modest forward price/earnings (PE) ratios of 14 (2023) and 11.5 (2024).

It’s not just revenue, margins and profits that are on the rise as hVIVO’s operating cash flow and free cash flow generation is set to improve no end.

After a restructuring of the business following the 2020 merger of Open Orphan and hVIVO, and with the benefit of greater scale, free cash flow (FCF) is set to move from an outflow of £2.3mn last year to £3.8mn positive FCF this year, rising to £3.9mn (2023) and £4.9mn (2024). The implication being that net cash of £15.8mn (30 June 2022) could end this year at £18.8mn (2.8p a share), rising to £22.3mn (3.3p) in 2023 and £26.8mn (4p) in 2024.

These are material sums, the forecast cash pile at the end of next month equates to more than a third of the group’s current market capitalisation of £62.7mn. FCF yields of 6.2 per cent and 7.8 per cent for the 2023 and 2024 forecast period highlights the improving cash generation of the group as the operational leverage of the business model kicks in. In addition, it demonstrates the attractions of the business to larger rivals. There is hidden value in the group’s balance sheet, too.
Hidden balance sheet value.

hVIVO offers potential for monetisation of non-core assets, as highlighted by the demerger of PoolBeg Pharma (POLB), which was successfully completed in June 2021. Listed on London’s junior market, PoolBeg has a market capitalisation of £46mn, not far short of hVIVO’s own market capitalisation. Three other business assets remain from the hVIVO merger with Open Orphan which could realise value:

Disease in MotionĀ® platform. This comprises an extensive database of infectious disease progression data that has been built up over the past 20 years. These data have applications for a wide variety of end users including Big Tech, wearables, pharma, and biotech companies, with whom the group has already had extensive discussions. In future clinical trials the company is planning to collect data on volunteers via wearable devices.

Imutex Limited. This is a joint venture between hVIVO and the SEEK Group, in which the group holds a 49 per cent equity stake. Imutex has a potential Phase III-ready universal flu vaccine candidate in development (FLU-v) and a Phase II-ready vaccine candidate for mosquito-borne diseases, including Zika, Malaria and Dengue Fever. FLU-v has a synthetic manufacturing process, which will make it particularly valuable in the current environment, given that there is expected to be increased demand for flu vaccines as result of the Covid-19 pandemic. Current annual flu vaccine supply is capped at 350mn doses per annum, as they are adapted for growth in eggs.

PrEP Biopharm Limited. The group holds a 62.5 per cent holding. PrEP’s lead asset, PrEP-001, is a viral prophylactic in Phase II for the prevention of upper respiratory tract viral infections and has potential for use against Covid-19.

Although market conditions are hardly conducive to monetising the value in these assets (the broader biotech sector has shed more than 25 per cent of its value this year)and it’s difficult to value them, FinnCap have given it a stab, valuing them at £60mn, or almost the same as hVIVO’s entire market capitalisation. The point is, that they are in the price for free given that net of cash on hVIVO’s balance sheet at the end of 2022, the group’s core activities have an enterprise valuation of £45.7mn even though they are forecast to generate operating profit of £4.1mn this year, rising to £5.4mn (2023) and £6.6mn (2024).

An enterprise valuation (enterprise value is market cap plus net debt) to operating profit multiple of eight times for next year is hardly exacting for a company that has such a high proportion of next year’s sales already booked, especially as end market demand for its CRO services is rising sharply.

Competitive landscape.

Liberum capital notes that the human challenge study market is led by hVIVO with few viable competitors. Two industry competitors exist with smaller offerings: SGS with a quarantine clinic in Belgium, and WCCT Global (owned by Altascience) based in California, USA.

SGS is a mid-tier global CRO, but its challenge study division is a small component of the group’s operations. It has a dedicated Human Challenge Unit 20-bed facility in Antwerp, Belgium, comprising eight single bed isolation rooms and a 12-bed ward style isolation unit, and a separate quarantine unit with 45 beds based in the University Hospital Antwerp. SGS also has a biosafety testing site in Glasgow where analysis on clinical samples from challenge studies as well as other non-challenge studies are performed. SGS’s expertise is in performing influenza challenge studies, but it also has Malaria challenge, and RSV challenge models.

WCCT Global is a subsidiary of mid-tier CRO/CDMO Altascience and like SGS its challenge study division is a small component of the wider group. Liberum estimates that WCCT Global has up to 60 beds that can be used for viral challenge studies, but they have been predominantly used for influenza and norovirus challenge studies.

In addition, there are around 30 academic institutions that can be seen as competitors in this space. However, they are largely research focused and lack the facilities, recruitment expertise and the scale to efficiently run commercial challenge studies for biopharma within a reasonable time. They rarely compete with hVIVO’s challenge study services.

It’s worth pointing out that hVIVO has only lost one competitive bid in its history, to SGS, due to lack of quarantine bed capacity at the time. It wasn’t a great loss as that contract was cancelled in the end due to poor efficacy results.

The group’s chief executive is 52-year old Yamin 'Mo' Khan, who joined the company as a non-executive director in October 2021 and was appointed to his current role in February this year. He previously worked at Pharm-Olam International, a global CRO, from 2000 to 2019. Khan made a maiden purchase of 510,204 shares at 9.8p each after the company’s interim results in September.

Shareholders.

HVIVO lacks institutional following with the shareholder base dominated by retail investors. As a result, the shares can be volatile with short-term price moves sometimes influenced by speculative buying and distorted by bulletin board posts.

That said, the shares can readily be traded on a bid-offer spread of around 0.25p and in decent bargain sizes.

Peer group comparisons.

The listed sector for CRO companies is niche and finding comparable peers is difficult. The most applicable UK peers are Ergomed, Ixico and Cambridge Cognition. Ergomed is undoubtedly the leader of the UK peer group: it is profitable, growing strongly and has potential to make acquisitions, fuelled by its cash generation and strong balance sheet. However, Ergomed trades on an enterprise valuation to Ebitda multiple of 20 times and a PE ratio of 29 for 2023, a 12-month period that is projected to deliver 12 per cent Ebitda profit growth, according to Edison Investment Research.

Smaller peers, Ixico and Cambridge Cognition, lag their peer group. Ixico is expected to report a loss in 2023 and Cambridge Cognition a small profit, hence the stratospheric multiples.

There are several international peers (ICON, Catalent, SGS, Charles River, Syneos Health, Medpace and PRA Group) which after years of consolidation have reached significant size and dwarf both hVIVO and Ergomed. These international large-tier CRO peers trade on 12-month forward multiples of around 16 times Ebitda to their enterprise value, based on analysis by Liberum Capital.

By comparison, hVIVO is rated on an enterprise valuation to Ebitda multiple of only 5.3 times for 2023, a 74 per cent ratings discount to Ergomed and a third of the rating of international peers. The smaller company also offers a free cash flow (FCF) yield of 6.2 per cent, or more than double that of Ergomed. Given that hVIVO is projected to deliver a CAGR of 28 per cent in EPS for the 2022 to 2024 forecast period – materially above its more mature peers – then it shouldn’t be priced on such a low multiple. Moreover, there is scope for hVIVO to monetise value in its legacy assets through demergers, so there is hidden value in the balance sheet which I have ignored entirely in the enterprise valuation calculations.

Target price.

On any basis, hVIVO’s shares are too lowly rated. They are priced on a single-digit earnings multiple to enterprise valuation even though the fast-growing company has reached an inflexion point whereby the operational gearing of the business model is set to kick in to propel earnings materially higher.

Assuming the company achieves analysts’ forecasts for 2023, hVIVO’s enterprise valuation in 12 months’ time would only equate to 4.9 times Ebitda for that year and a miserly four times Ebitda estimates of £9.7mn for 2024. A more realistic multiple would be 12.5 times Ebitda estimates of £8.4mn for 2023, which supports a target market capitalisation of £127.3mn and enterprise valuation of £105mn after factoring in a closing net cash of £22.3mn. On this basis, I have fair value of the equity at 19p. It could prove a conservative estimate.

It’s also worth noting that the share price seems to have finally formed a base in the 9p to 10.6p trading range, having deflated from a bubble valuation during Covid-19 lockdowns when day traders sent the shares soaring way above their intrinsic value. A share price break-out above the top of that trading range would be a strong signal that the consolidation period is finally over. BUY.

Posted at 20/12/2022 20:02 by sev22
This is the detailed report that featured in the Investors Chronicle a month ago without the tables, charts and diagrams.

I have decided to re-circulate it for all serious investors because the share price has almost returned to the level it was at when Simon Thompson first tipped the company as a strong buy for 2023.

Alpha small company research.

17 November 2022.

Ride the boom in vaccine research.

A fast-growing specialist in human challenge clinical trials for infectious and respiratory disease vaccines has been winning new contracts that support a surge in profit.

Simon Thompson’s view:

‘There has been a material increase in pharmaceutical research and development (R&D) activity in infectious diseases during and after the Covid-19 pandemic. However, there are still only 26 infectious diseases that are preventable by available vaccines, according to the World Health Organisation. So, given the costs involved, and the fact that the vast majority of vaccine programmes fail, the drug industry is striving to get smarter in the way it develops vaccines. One way to mitigate risk is to conduct human challenge clinical trials as part of the development process. It’s a buoyant niche business that is driving huge demand for the services of one below the radar small-cap company. For good measure, its shares are materially undervalued.’

Bull points:

1. Strong contract momentum
2. 2023 order book covers 88 per cent of budgeted revenue
3. High repeat revenue
4. Blue chip client base
5. Contract size increasing
6. World leader in challenge studies
7. Only full-service provider in the field
8. Experienced chief executive to drive growth phase
9. Cross-selling opportunities
10. Potential spin outs of legacy investments
11. Merger and acquisition (M&A) target
12. Free cash flow improving

Bear points:

1. Potential competition from larger players
2. No guarantee of pipeline of contracts converting
3. Low institutional following

Contract research organisations (CROs) provide outsourced research support services to the pharmaceutical, biotechnology and medical device industries on a contract basis. In the wake of the Covid-19 pandemic there is an explosion in demand for these services as developers of vaccines seek to work smarter.

It has been a pivotal year for hVIVO (formerly Open Orphan), a rapidly growing CRO that specialises in testing infectious and respiratory disease vaccines and antivirals using human challenge clinical trials. It provides end-to-end early clinical development services for a broad and long-standing client base of biopharma companies.

Building on decades of experience, hVIVO is currently the only CRO focused on challenge studies, providing world class expertise and capabilities in challenge agent manufacture, a unique portfolio of established human challenge models to test a broad range of infectious and respiratory disease products, and specialist drug development and clinical consultancy services through its Venn Life Sciences subsidiary.

Established in 1989 as a spin-out from Queen Mary University, London, hVIVO has leveraged its insights in established human disease challenge models in influenza (Flu), respiratory syncytial virus (RSV) and human rhinovirus (HRV), to expand the use of viral challenge in further respiratory indications including asthma, and chronic obstructive pulmonary disease (COPD). Its history dates back to the UK Common Cold Unit in Salisbury, which ran human challenge studies from 1946 until 1989. The facility was a former military hospital that was donated by Harvard University and began human challenge studies to try to find a cure for influenza.

hVIVO’s portfolio of human challenge study models for infectious and respiratory diseases includes a recently established Covid-19 model, and several new models, such as Malaria, to address the dramatic growth of the global infectious disease market.

hVIVO runs challenge studies in London from its Whitechapel quarantine clinic, its state-of-the-art QMB clinic with its highly specialised on-site virology and immunology laboratory, and its newly opened clinic in Plumbers Row. To recruit volunteers and patients for studies, hVIVO leverages its unique clinical trial recruitment capacity via its FluCamp volunteer screening facilities in London and Manchester which have access to more than 250,000 volunteers. These newly opened facilities have expanded the scope of the business to enable Phase I and Phase II vaccine field trials, pharmacokinetic (PK) studies, bridging studies, and patient trials as part of large international multi-centre studies.

In addition, the group’s Paris and Breda offices have over 25 years of experience providing drug development services such as biometry, data management, statistics chemistry, manufacturing and controls (CMC), and medical writing to third party clients, as well as supporting the London-based challenge studies.

Strong contract momentum.

As a trusted partner to the global biopharma industry, growth is being mainly driven by the group’s market leading competitive position, as well as increasing demand for human challenge services in what is a rapidly expanding infectious and respiratory clinical trials market. To date, the group has completed over 60 human challenge studies, inoculating more than 3,500 volunteers, and boasts four of the world’s top 10 biopharma giants as active clients. The value it offers to its clients can be seen by the increasing size of the contracts being awarded. Only three years ago, the average contract award was worth £3mn-£4mn, whereas this year the group has signed three contracts worth more than £10mn in revenue.

Since the release of interim results in early September, hVIVO has announced a massive £13.4mn contract with a US biotechnology client, a repeat customer, to test its respiratory syncytial virus (RSV) antiviral candidate using hVIVO's established RSV Human Challenge Study Model.

The Phase IIa double-blinded placebo-controlled human challenge trial will take place at hVIVO’s specialist quarantine facilities in Whitechapel and will evaluate the efficacy profile of the antiviral against RSV infection. The study is expected to commence in the third or fourth quarter of 2023, with the revenue being recognised in 2023 and 2024. As part of the study, hVIVO will recruit healthy volunteers through its dedicated volunteer recruitment arm, FluCamp.

The contract is the tenth award and the seventh challenge study contract won this year, which have a combined total disclosed value of £65.4mn. It means that the record £80mn backlog of contracts that hVIVO reported in early September has increased further.

Brokerage FinnCap estimate that 88 per cent (£48mn) of its 2023 revenue estimate of £54mn is already contracted through the order backlog; as well as 21 per cent (£12mn) of its £59mn revenue estimate for 2024, thus materially de-risking analysts’ earnings estimates.

Typically, around 50 to 100 volunteers are recruited to a challenge trial, inoculated with the challenge agent (virus) and placed in quarantine for 10 to 15 days. They are then discharged and receive outpatient follow up visits. It’s a very cost-effective way for large pharma to develop their RSV vaccine candidates. That’s because the $10mn-plus cost of a challenge study represents a fraction of the total cost (typically well over $100mn) to take a vaccine candidate through to Phase III trial.

There are ethical advantages to human challenge trials, as they subject far fewer volunteers to the vaccine candidates. For instance, a Phase III trial of a RSV vaccine candidate could involve the costly recruitment of upwards of over 50,000 participants. This becomes of major significance for research into complicated diseases like malaria, where studies have shown that less than 10 per cent of preclinical vaccines progress to Phase III clinical evaluation and so there are many potentially effective vaccine candidates in need of testing.

Without the use of a preliminary challenge experiment, large malaria vaccine trials would be the only alternative. This would expose large numbers of people to many ineffective vaccines in less supervised conditions and with treatment less available than for human challenge studies. As all vaccine candidates pose a certain degree of risk, more people would be placed at risk of rare, serious side effects of ineffective vaccines than would occur in human challenge studies, which involve far smaller sample sizes.

The raft of contract wins this year highlights hVIVO's world leading expertise in its field, its ability to execute sizable contracts and the industry's renewed focus on developing new treatments for RSV. The group also continues to see growing demand for larger challenge studies from both new and existing clients as they seek greater clarity of data and pursue lower frequency endpoints to de-risk their programmes ahead of later stage field studies.

Challenge studies offer considerable insight into the development therapeutic in terms of appropriate dosing, timing of dosing and most relevant endpoint. In turn, these outputs allow the pharma company to optimise its Phase II and III field trial programme, thus increasing the probability of success, lowering the overall cost and accelerating the development timeline. It also allows early decision making to terminate vaccine candidates that are unlikely to be successful in Phase III trials, underpinning the “succeed fast, fail early” mantra.

Although vaccines are amongst the most effective public health interventions against infectious diseases, the time to develop a new vaccine is long and the probability of success low, with an estimated development time of at least a decade and a market entry probability of only 6 per cent. Both the time and the costs associated with the development of new vaccines through the phases of safety, immunogenicity (the ability of cells/tissues to provoke an immune response) and clinical efficacy are often prohibitive.

Therefore, carefully conducted challenge studies can offer substantial value by providing insights into host-pathogen interactions, determining host factors that contribute to infection, and identifying immune correlates of protection against infection/disease (how the immune system acts as a biological defence to protect against infection caused by foreign invaders, such as viruses). In turn, this can accelerate the development and testing of vaccines and diagnostics for infectious diseases. Challenge studies also provide information on vaccine efficacy, protection against specific pathogen strains, and resistance in a small number of volunteers. They are valuable for diseases, too, where animal models are poor predictors of the disease in humans or when the disease is sporadic and a Phase III clinical trial is not possible.

Growing CRO market opportunity.

Importantly, the global clinical CRO market is in a high growth phase with analysts at Results Healthcare predicting compound annual growth rate (CAGR) of 10 per cent through to 2024 - when it could be worth $62.2bn.

They also highlight the following key factors driving growth in the market:

● Robust funding environments, particularly for emerging biopharma.
● Rising costs for product development which stimulate the need for lower capital costs
requirements and flexible outsourcing models.
● Demand for accelerated development timelines and quicker routes to market.
● Globalisation of clinical trials which creates a demand for improved reach and access to patients.
● Expanding scope of CRO solutions and technology.
● Requirement for therapeutics expertise to address complex and chronic disease areas.

Although pharmaceutical companies continue to invest in research & development (R&D) globally, the returns from drug R&D have been decreasing. As a consequence, large pharma has steered towards outsourcing more of their pharmaceutical research, development, and manufacturing activities to CROs or CDMOs (Contract Development and Manufacturing Organisations) as this can be a more flexible and cost-efficient approach, compared to keeping these capabilities in-house.

Results Healthcare also notes that this outsourcing trend, as well as the greater number of drugs in development, has contributed to rising penetration of outsourcing partners in the global clinical and pre-clinical trials market. For instance, the global CRO penetration rate was 34 per cent in 2014 and this is expected to account for almost half of the total clinical trial market next year.

Despite the advancements made in recent years, there are still only 26 infectious diseases that are preventable by available vaccines, according to the World Health Organisation. Interestingly, for industry-sponsored drug development programmes, respiratory infections were the most actively researched vaccine category, accounting for more than a third of all vaccine development programmes, in 2020 and 2021. This highlights how well placed hVIVO is within the vaccine space with its challenge platform model portfolio.

Accounting for 8 per cent of the total clinical trial market in 2021, analysts at Global Market Insights predict the infectious disease segment could be worth $5.5bn by 2027. Of course, challenge studies still only represent a small and nascent segment of the broad CRO market, which after the Covid-19 pandemic is now receiving significant attention. Although difficult to assess the challenge study market, Liberum Capital estimates there are around 20 challenge studies conducted each year. Some of these trials are by academic institutions.

Using the prevailing average contract size of £6.7mn (based on hVIVO’s order book over the last two years), this indicates £100mn-£135mn of challenge study work each year, excluding any additional income through manufacturing and validating bespoke challenge agents. The market currently comprises three industry competitors – hVIVO, Swiss-based SGS SA and WCCT Global – and academic institutions.

hVIVO is the clear industry leader, having conducted 30 per cent of all challenge studies in 2021, up from a low to mid-teen per cent market share over the prior decade. Using the broad CRO market as an underlying annual growth trend and factoring in the 3 per cent growth rate in the number of infectious diseases therapeutics, Liberum estimates the challenge study CRO market could be worth £130mn-£170mn by 2024 and potentially £175mn-£240mn by 2028.

Research from Pharmaprojects and Citiline highlights that the number of active vaccine, anti-viral and respiratory compounds in development increased by 86 per cent from 2019 to 2021, another positive tailwind for hVIVO given the increasing penetration that outsourcing CRO services now plays in vaccine development programmes.

hVIVO also benefits from a major competitive advantage that acts as a barrier to entry to would-be rivals. Namely, the regulatory differences between geographies. That’s because challenge agents are not viewed as an investigational medicinal product in the UK, so there is no need to submit to the regulator. However, in the EU regulatory approval is required for the challenge agent and in the US, an investigational new drug application must be submitted.

The numbers highlight the group’s increasingly dominant share in this niche market. Around 60 per cent of hVIVO’s current order book relates to biotech customers and the balance relates to big pharma, with the group carrying out three active challenge studies for big pharma in the first half of 2022 and two full-service challenge studies with values exceeding £25mn. Moreover, hVIVO has signed up eight challenge studies with big pharma companies since 2018 and all the big pharma clients are repeat customers. Also, Venn Life Sciences (hVIVO’s complementary consultancy business) boasts an eye-catching 80 per cent level of repeat business from its biotech clients.

Venn Life accounted for 16 per cent of group revenue in the first half of 2022, and Hvivo’s management has been making strategic hires to expand the division’s service offering. It is also exploiting cross-selling opportunities, landing a £5mn RSV human challenge study contract that stemmed from Venn Life’s work on a client’s early clinical development programme.

hVIVO’s management views the Venn Life business as a key driver of the business, targeting growth in new areas including Advanced Therapy Medicinal Products (ATMP). These are medicines based on genes, tissues or cells.

Improving financials.

Backed by a bumper order book and having booked £9mn of group revenue in July and August 2022 (so after the half-year-end), house broker FinnCap expects the group’s hVIVO division, which carries out the challenge studies, to grow revenue from £29.4mn last year to £42.5mn in 2022 and account for 82 per cent of its total revenue estimate of £51.1mn (up from £39mn reported in 2021). Furthermore, taking account of challenge study contract wins, revenue from Venn Life, laboratory services and non-challenge studies, the brokerage estimates that £53mn of its 2023 revenue estimate of £56mn is already covered.

The growth is not at the expense of margins as brokers anticipate group gross margin to expand from 31 per cent (2022) to 33 per cent (2023) and 34.7 per cent (2024), while double-digit revenue growth is forecast to outpace an 8 per cent anticipated increase in operating expenses in both 2023 and 2024.

A rising gross margin in a positive sales cycle, with overheads well managed, sets the foundation for a high proportion of incremental gross profit earned to be converted into both Ebitda (earnings before interest, taxation, depreciation and amortisation) and operating profit: hence why the brokerage forecasts pre-tax profit of £3.6mn (2022) to rise to £5mn (2023) and £6.3mn (2024). On this basis, FinnCap expects earnings per share (EPS) of 0.49p (2022), 0.67p (2023) and 0.81p (2024), implying the shares are being rated on modest forward price/earnings (PE) ratios of 14 (2023) and 11.5 (2024).

It’s not just revenue, margins and profits that are on the rise as hVIVO’s operating cash flow and free cash flow generation is set to improve no end.

After a restructuring of the business following the 2020 merger of Open Orphan and hVIVO, and with the benefit of greater scale, free cash flow (FCF) is set to move from an outflow of £2.3mn last year to £3.8mn positive FCF this year, rising to £3.9mn (2023) and £4.9mn (2024). The implication being that net cash of £15.8mn (30 June 2022) could end this year at £18.8mn (2.8p a share), rising to £22.3mn (3.3p) in 2023 and £26.8mn (4p) in 2024.

These are material sums, the forecast cash pile at the end of next month equates to more than a third of the group’s current market capitalisation of £62.7mn. FCF yields of 6.2 per cent and 7.8 per cent for the 2023 and 2024 forecast period highlights the improving cash generation of the group as the operational leverage of the business model kicks in. In addition, it demonstrates the attractions of the business to larger rivals. There is hidden value in the group’s balance sheet, too.
Hidden balance sheet value.

hVIVO offers potential for monetisation of non-core assets, as highlighted by the demerger of PoolBeg Pharma (POLB), which was successfully completed in June 2021. Listed on London’s junior market, PoolBeg has a market capitalisation of £46mn, not far short of hVIVO’s own market capitalisation. Three other business assets remain from the hVIVO merger with Open Orphan which could realise value:

Disease in MotionĀ® platform. This comprises an extensive database of infectious disease progression data that has been built up over the past 20 years. These data have applications for a wide variety of end users including Big Tech, wearables, pharma, and biotech companies, with whom the group has already had extensive discussions. In future clinical trials the company is planning to collect data on volunteers via wearable devices.

Imutex Limited. This is a joint venture between hVIVO and the SEEK Group, in which the group holds a 49 per cent equity stake. Imutex has a potential Phase III-ready universal flu vaccine candidate in development (FLU-v) and a Phase II-ready vaccine candidate for mosquito-borne diseases, including Zika, Malaria and Dengue Fever. FLU-v has a synthetic manufacturing process, which will make it particularly valuable in the current environment, given that there is expected to be increased demand for flu vaccines as result of the Covid-19 pandemic. Current annual flu vaccine supply is capped at 350mn doses per annum, as they are adapted for growth in eggs.

PrEP Biopharm Limited. The group holds a 62.5 per cent holding. PrEP’s lead asset, PrEP-001, is a viral prophylactic in Phase II for the prevention of upper respiratory tract viral infections and has potential for use against Covid-19.

Although market conditions are hardly conducive to monetising the value in these assets (the broader biotech sector has shed more than 25 per cent of its value this year)and it’s difficult to value them, FinnCap have given it a stab, valuing them at £60mn, or almost the same as hVIVO’s entire market capitalisation. The point is, that they are in the price for free given that net of cash on hVIVO’s balance sheet at the end of 2022, the group’s core activities have an enterprise valuation of £45.7mn even though they are forecast to generate operating profit of £4.1mn this year, rising to £5.4mn (2023) and £6.6mn (2024).

An enterprise valuation (enterprise value is market cap plus net debt) to operating profit multiple of eight times for next year is hardly exacting for a company that has such a high proportion of next year’s sales already booked, especially as end market demand for its CRO services is rising sharply.

Competitive landscape.

Liberum capital notes that the human challenge study market is led by hVIVO with few viable competitors. Two industry competitors exist with smaller offerings: SGS with a quarantine clinic in Belgium, and WCCT Global (owned by Altascience) based in California, USA.

SGS is a mid-tier global CRO, but its challenge study division is a small component of the group’s operations. It has a dedicated Human Challenge Unit 20-bed facility in Antwerp, Belgium, comprising eight single bed isolation rooms and a 12-bed ward style isolation unit, and a separate quarantine unit with 45 beds based in the University Hospital Antwerp. SGS also has a biosafety testing site in Glasgow where analysis on clinical samples from challenge studies as well as other non-challenge studies are performed. SGS’s expertise is in performing influenza challenge studies, but it also has Malaria challenge, and RSV challenge models.

WCCT Global is a subsidiary of mid-tier CRO/CDMO Altascience and like SGS its challenge study division is a small component of the wider group. Liberum estimates that WCCT Global has up to 60 beds that can be used for viral challenge studies, but they have been predominantly used for influenza and norovirus challenge studies.

In addition, there are around 30 academic institutions that can be seen as competitors in this space. However, they are largely research focused and lack the facilities, recruitment expertise and the scale to efficiently run commercial challenge studies for biopharma within a reasonable time. They rarely compete with hVIVO’s challenge study services.

It’s worth pointing out that hVIVO has only lost one competitive bid in its history, to SGS, due to lack of quarantine bed capacity at the time. It wasn’t a great loss as that contract was cancelled in the end due to poor efficacy results.

The group’s chief executive is 52-year old Yamin 'Mo' Khan, who joined the company as a non-executive director in October 2021 and was appointed to his current role in February this year. He previously worked at Pharm-Olam International, a global CRO, from 2000 to 2019. Khan made a maiden purchase of 510,204 shares at 9.8p each after the company’s interim results in September.

Shareholders.

HVIVO lacks institutional following with the shareholder base dominated by retail investors. As a result, the shares can be volatile with short-term price moves sometimes influenced by speculative buying and distorted by bulletin board posts.

That said, the shares can readily be traded on a bid-offer spread of around 0.25p and in decent bargain sizes.

Peer group comparisons.

The listed sector for CRO companies is niche and finding comparable peers is difficult. The most applicable UK peers are Ergomed, Ixico and Cambridge Cognition. Ergomed is undoubtedly the leader of the UK peer group: it is profitable, growing strongly and has potential to make acquisitions, fuelled by its cash generation and strong balance sheet. However, Ergomed trades on an enterprise valuation to Ebitda multiple of 20 times and a PE ratio of 29 for 2023, a 12-month period that is projected to deliver 12 per cent Ebitda profit growth, according to Edison Investment Research.

Smaller peers, Ixico and Cambridge Cognition, lag their peer group. Ixico is expected to report a loss in 2023 and Cambridge Cognition a small profit, hence the stratospheric multiples.

There are several international peers (ICON, Catalent, SGS, Charles River, Syneos Health, Medpace and PRA Group) which after years of consolidation have reached significant size and dwarf both hVIVO and Ergomed. These international large-tier CRO peers trade on 12-month forward multiples of around 16 times Ebitda to their enterprise value, based on analysis by Liberum Capital.

By comparison, hVIVO is rated on an enterprise valuation to Ebitda multiple of only 5.3 times for 2023, a 74 per cent ratings discount to Ergomed and a third of the rating of international peers. The smaller company also offers a free cash flow (FCF) yield of 6.2 per cent, or more than double that of Ergomed. Given that hVIVO is projected to deliver a CAGR of 28 per cent in EPS for the 2022 to 2024 forecast period – materially above its more mature peers – then it shouldn’t be priced on such a low multiple. Moreover, there is scope for hVIVO to monetise value in its legacy assets through demergers, so there is hidden value in the balance sheet which I have ignored entirely in the enterprise valuation calculations.

Target price.

On any basis, hVIVO’s shares are too lowly rated. They are priced on a single-digit earnings multiple to enterprise valuation even though the fast-growing company has reached an inflexion point whereby the operational gearing of the business model is set to kick in to propel earnings materially higher.

Assuming the company achieves analysts’ forecasts for 2023, hVIVO’s enterprise valuation in 12 months’ time would only equate to 4.9 times Ebitda for that year and a miserly four times Ebitda estimates of £9.7mn for 2024. A more realistic multiple would be 12.5 times Ebitda estimates of £8.4mn for 2023, which supports a target market capitalisation of £127.3mn and enterprise valuation of £105mn after factoring in a closing net cash of £22.3mn. On this basis, I have fair value of the equity at 19p. It could prove a conservative estimate.

It’s also worth noting that the share price seems to have finally formed a base in the 9p to 10.6p trading range, having deflated from a bubble valuation during Covid-19 lockdowns when day traders sent the shares soaring way above their intrinsic value. A share price break-out above the top of that trading range would be a strong signal that the consolidation period is finally over. BUY.

Posted at 15/11/2022 11:49 by 1gw
Chica1 - On Polb I don't know, just glad to see the rally. Sentiment is a funny thing. I think the newsflow helps, as do JS's upbeat presentations where he points out all that they have done since float. What we don't know is how much work has been going on behind the scenes to woo institutional investors, and that may also be a factor.

My benchmark for POLB is the XBI index. Clearly POLB shareprice moved down broadly in line with XBI until around June which was a bit odd given it had so much of its market cap in cash - and specifically cash that was there to acquire assets, not just fund existing programs. So I thought that all else being equal, it should have moved down at half the pace of the XBI (50% cash at float), or maybe done even better since the market could expect them to pick up distressed biotech assets with their cash, positioning them for any rebound in biotech.

Then POLB underperformed the XBI significantly between around June and end-September. Was that some HVO-heritage investors throwing in the towel when it got down to around 50% float price? Recently it has bounced back spectacularly, and there may well be a bit of momentum investing helping it along now as well as the "fundamental" newsflow.

POLB is biotech, and very small cap at that, so volatility is to be expected. And whatever anyone says about POLB-001 being "likely" to succeed in its trials, these trials are binary outcomes and many a drug has failed a trial that its advocates thought it would pass. If POLB-001 does fail then the shareprice is likely to see a big hit, although the new targets coming out of the AI program mean that the company is likely to be able to build a multi-asset pipeline to insulate itself a bit from individual trial outcomes.

Probably on the wrong thread this, I know, but as many HVO holders are also POLB holders, and HVO has other biotech assets it would like to monetise, I think it's reasonable to post it here.

No advice intended, of course.

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