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LSE interview – Cathal Friel refocuses Open Orphan #ORPH as he raises 5m and buys virology specialist hVIVO

In a wide-ranging interview with London South East, Open Orphan Executive Chairman Cathal Friel outlines his vision for the business and explains how the combined talents of Open Orphan, hVivo and Venn Life Sciences will create a soon to be profitable pharmaceutical services one-stop shop.

Friel says this acquisition is the last however, as he is a major shareholder and he doesn’t want to see his own shareholding diluted along with everyone elses. The focus has been on reducing head count and building revenues at Venn Life Sciences since the Open Orphan IPO last June. Now, with the £13M bolt-on acquisition of hVivo, the London-based virology specialist company, the game has changed once again.

Friel says he sees hVivo as a loss-making and hugely undervalued asset. hVIVO went from being a vaccines and virology specialist to a drugs discovery business five years ago, with Neil Woodford and other investors putting in 113m of investment. “I really like Trevor Phillips and Tim Sharpington who came in 18 month ago to turn it around. But the previous management team got lost and we have picked up a bargain”. So how much are the assets worth today? “It’s very hard to say” explained Cathal, “113M in five years is a lot to spend but you can’t blow it all.

We have a 24 bed quarantine clinic facility which is worth 25 million or so on replacement value, we have a virology lab with the world’s largest stock of virology models likewise worth 25 million, and 7 or 8 million, so we 50 or 60 million of real assets”.

Keeping pace with Open Orphan

It’s been an exceptionally busy few months for Open Orphan (ORPH) and its Executive Chairman Cathal Friel.

Since reversing into Venn Life Sciences last summer, Open Orphan has set it’s sights on a series of acquisitions to forge a specialist pharmaceutical services group with a focus on orphan drugs. In raising the money to complete the Venn Life Sciences and recent hVIVO acquisitions,  Friel has invested over £2m of his own money through his investment vehicle Raglan Capital into Open Orphan. His investments are locked in until three years after the IPO in June 2019.

In 2018, over 50% of new FDA approved drugs were classed as ‘orphan’, i.e. treat rare diseases.

With this in mind, Friel and his team have constructed a vehicle to acquire and consolidate a number of smaller companies into a larger profitable pharma services company. Within this there is Open Orphan Genomic Health Data, using AI tools to build a valuable database of patient information using a low cost data collection methodology.

In the run up to the end of 2019, ORPH struck several three year contract agreements and collaborations lucrative partnership agreements and collaborations, most notably with French pharma giant Ipsen Group, Japanese pharma company Carna and a Tier 1 German pharma company as part of moving the original Venn business away from short term ad-hoc contracts towards longer more sustainable contracts.

The acquisition promised at Open Orphan’s launch last summer came to fruition in December, when the company announced the acquisition of hVIVO, a world leader in the provision of viral challenge study services to companies developing vaccines for viruses.

The deal offered 2.47 shares for each hVIVO share, providing its shareholders with a 33% uplift. Open Orphan also broke the mould by moving fast in a slow moving sector as this takeover was recorded as one of the fastest in 7 years for the London market, completing as it did in just 38 days. More importantly, the economies of scale the merger delivers greatly broadens Open Orphan’s in-house clinical offering and opportunities to commercialise the existing deal pipeline.

Both Venn and more importantly hVIVO had been chronically loss making, however given the compelling synergies, the Open Orphan team led by Friel are optimistic that the enlarged Group will be profitable by June 2020 if not before.

To maximise on the opportunities generated by the acquisition, a further £5.3m fundraise was completed at the end of January 2020, conducted at a small premium to market price and with a minimum fundraise of £2.5m  once again underwritten by Friel’s investment vehicle. The raise was oversubscribed, predominantly funded by institutional investors and at a good premium to the IPO fundraise in June 2019. Added to this, Friel personally invested £300k.

As part of the hVIVO acquisition, Open Orphan now owns the largest quarantine facility in N Europe, with 24 quarantine bedrooms at Queen Mary’s Hospital in London.

As things currently stand, this facility may potentially be used for ill patients patients during the current Coronavirus crisis that is gripping China and slowly spreading to other countries.

Professor John Oxford, one of the original founders of hVIVO is also a world-leading expert on Coronavirus and virology. In this capacity he has appeared across numerous TV and radio programmes over the past week, and is also an advisor and consultant to Cathal Friel and the enlarged Open Orphan Group.

The coming days will see more information emerge about Open Orphan and hVivo’s capabilities surrounding virology, vaccines and the quarantine facility.

To keep up to speed with this fast moving company, the latest copy of the Open orphan investor presentation is now available to view on https://www.openorphan.com/investors/reasons-invest.

Alan Green – February 2020

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