Open Orphan: My pick for this year’s ISA allowance

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Open Orphan: My pick for this year’s ISA allowance

Master Investor Editor in Chief James Faulkner reveals his top pick for this year’s ISA allowance as the tax year draws to a close. 

As the pandemic reaches its denouement, you might think that it is time to say goodbye to the ‘covid stocks’ in your portfolio – and in many cases you’d probably be right. However, restrictions might be (hopefully) on the way out, at least here in the UK, but Covid-19 will be with us for the foreseeable future. With Covid-19 now an endemic disease, the current batch of vaccines won’t be a silver bullet, in the sense that they’ll need to be updated each year as the virus continues to mutate, just as is the case with the annual flu jab. 

All this means lots of work for the vaccinators for years to come – and vaccines need to be tested, which means one small UK-based company in particular looks to have a very bright future ahead of it. AIM-listed Open Orphan* (LON:ORPH) is the world leader in testing vaccines via human challenge studies, which is a process whereby a healthy volunteer is given a vaccine and then purposely infected with a virus – for example, Covid-19 – in controlled conditions in order to test the efficacy of the vaccine. Open Orphan recently entered the spotlight as it was granted a £40 million contract by the UK Government to establish human challenge models for Covid-19 in the UK, making this a world first and capturing the attention of the world’s media. 

The company’s plucky CEO, Cathal Friel, believes the Covid crisis has been a wake-up call to governments and pharmaceutical firms the world over, and as a result we are now entering a golden age for vaccine R&D after decades of underinvestment. This bodes well for Open Orphan, which charges £4-5 million for conventional (non-Covid) challenge studies and £8-10 million for Covid-19 challenge studies. Orphan reached profitability in the final quarter of last year, and 2021 looks to be a year of massive growth as new facilities are added to keep up with demand. 

Source: Company presentation, Feb 2021

Asset disposals could offer major upside potential

The fact that Orphan was formed from the merger of three different companies has left it with several non-core assets on its balance sheet – namely Imutex, Prepbiopharma and a repurposed influenza immune modulator with potential efficacy against Covid-19. The timing of these disposals is anyone’s guess, but the CEO has repeatedly stated that these are in the pipeline and Imutex in particular deserves further attention. 

Open Orphan owns 49% of Imutex along with Irish-based Seek Group. What appears quite tantalising for investors is the fact that Imutex has a phase 3-ready universal flu vaccine which is now the only universal flu vaccine at this stage of development. A universal flu vaccine – meaning one that does not need continually updating each year – has been described as the “holy grail” of vaccines, and Seek CEO Gregory Stoloff reckons the market could be worth in the region of $10 billion annually.

With a potential sale or Nasdaq listing on the cards, it doesn’t take much imagination to realise that a spin-off of Orphan’s stake in Imutex could prove very lucrative for investors. But incredibly, there could be another potential spin-off in the pipeline that could be even more exciting. Open Orphan company hVivo has an extensive database of infectious disease progression that is the only one of its kind in the world. This database is now patented as the Disease in Motion platform, which includes clinical, immunological, virological and digital biomarkers. 

The plan is to license this data to the big tech companies for their wearable devices: just imagine the value of being able to tell an iWatch user he or she is about to develop Covid-19! This data is potentially hugely valuable and Cathal Friel – who also happens to be the company’s largest shareholder – has indicated that Disease in Motion could be worth more than the entire company as a standalone entity. Given that he expects to transform Open Orphan into a billion-dollar company in the not-too-distant future, that’s a big deal.  

* James Faulkner owns shares in Open Orphan.

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