Open Orphan PLC (LON: ORPH)  

Open Orphan PLC (LON: ORPH) is an FTSE AIM All-Share index listed pharmaceutical research company that holds a leading global position in testing vaccines and antivirals using human challenge clinical trials. Moreover, ORPH renders services to Big Pharma, biotech, and government/public health organisations.

Growth Prospects

• New Contracts: The Company has recently signed a contract worth USD 13.4 million with a US-based biotechnology company testing its highly promising influenza antiviral candidate. Moreover, ORPH expects to sign more contracts in this area as the infectious disease market is anticipated to grow exponentially in the coming years and reach USD 250 billion by 2025.
• Positive Trials: ORPH had reported positive Phase I clinical study results for AGS-v PLUS mosquito vaccine candidate. The Company had identified significant growth opportunities in this space as around 360 million cases, and more than 600,000 deaths were reported from mosquito-borne diseases annually.
• Strategic Priorities: The Company would explore opportunities to work with Big Pharma and biotech companies to accelerate the progress of human challenge studies in diseases such as RSV, Influenza, Asthma, hRV, COPD and Malaria.

Key Risks

• US Inflation: The U.S. consumer price inflation has touched 40 years high during December 2021. Thus, it may cause a sooner-than-expected interest rate hike.
• Omicron Variant: The Government-led restrictions under Plan B because of an increasing number of Covid-19 cases in the UK may adversely impact the UK Equities.
• Weak Liquidity Levels: The Company’s current ratio and the quick ratio remained less than that of the respective industry median during H1 FY21.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Open Orphan PLC.

 Friel (Cathal) is the most significant shareholder as it holds nearly 47.09 million shares as of 31 December 2021.          

. H1 FY21 Financial Highlights (for the six months ended 30 June 2021, as of 20 September 2021)

(Source: Company Results)

• Top-Line Revenue: ORPH had reported robust revenue growth of around 242% from £6.4 million during H1 FY20 to £21.9 million for H1 FY21.
• Profitability: The Company had demonstrated a positive turnaround and reported a positive EBITDA of £2.1 million during H1 FY21. In comparison, it had reported an EBITDA loss of negative £4.1 million during H1 FY20.
• Balance Sheet: The Company’s cash & cash equivalents stood at £14.9 million as of 30 June 2021.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

(Source: Refinitiv; Analysis done by Kalkine Group)

On 13 January 2022, at 09:21 AM GMT, ORPH’s shares were trading at around GBX 19.63, down by around 3.08% from the previous day closing price. Stock 52-week High and Low were 47.79 and GBX 16.86, respectively.

From a technical perspective, the stock price is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price. Moreover, the 14-days RSI stood at ~40.76.

Over the last two years, ORPH’s stock price has delivered a positive return of ~209.19%, and it has outperformed the FTSE AIM All-Share index (benchmark index) with a return of about 21.54% and FTSE All-Share Pharmaceuticals & Biotechnology (benchmark sector) with a return of around 7.03%. 

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

Business Outlook

The Company had shown a tremendous jump in the top-line revenue during H1 FY21. Moreover, ORPH aimed to capitalize on market opportunities created through the enormous expansion of investment in the infectious and respiratory disease market. Furthermore, ORPH aimed to generate revenue of £50 million in FY22 from non-COVID-19 work, illustrating signed contracts and contracts in advanced negotiation stage. However, the stock price may undergo adverse corrections because of the penny nature and ongoing investors’ worries regarding the Omicron variant of coronavirus. Thus, it would depend on the risk appetite of the investors to take a reasonable position on this company having strong revenue visibility for 2022.

Considering the strong financial performance during H1 FY21, increased revenue visibility, strategic partnerships, favourable market dynamics, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Open Orphan PLC at the current market price of GBX 19.63 (as of 13 January 2022 at 09:21 AM GMT), with lower-double digit upside potential based on 44.13x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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