It’s been a rough year for the Open Orphan (LSE:ORPH) share price. The contract research organisation (CRO) has watched its stock plummet by over 60% in the last 12 months. Yet recently, this downward trajectory appears to have made a U-turn. In fact, since the start of April, the stock is up over 20%!
So what’s behind this new-found growth? And should I be considering this business for my portfolio?
The surging Open Orphan share price
Despite the recent impressive returns, management hasn’t made any significant announcements this month. So what’s going on? It seems the catalyst behind Open Orphan’s share price growth is a resurgence in investor confidence, following some encouraging news towards the end of March.
Firstly, one of the group’s subsidiaries secured a new £5m contract with an undisclosed European biotech company. The group will run human challenge trials to test a new intravenous antiviral candidate against the respiratory syncytial virus (RSV).
Now £5m may not seem like much, but that’s 10% of management’s revenue target for 2022. And another piece of promising news shows that more multi-million pound contracts could be set to roll in.
Meanwhile, Open Orphan’s Covid-19 characterisation study results have just been published in Nature Medicine, a peer-reviewed medical research journal.
Why is this important? Simply put, with proven disease modelling data now at the firm’s fingertips, it can now begin conducting human challenge trials for Covid-19 throughout the rest of 2022 and beyond. That’s quite a big potential win for the firm’s revenue stream and share price.
Taking a step back
As encouraging as this news is, there remains a long road ahead. Running additional challenge trials is undoubtedly exciting, especially since the firm recently expanded its patient volunteering capacities. However, like everything in the medical world, these trials are subject to regulatory approval, which can take a while to secure and increase costs.
This is something management has had to deal with from day one. And with a relatively small revenue stream, it’s not surprising that the firm remains unprofitable. A recent trading update hinted that EBITDA will be in the black for its 2021 fiscal year. However, with no specific figures given and full-year results yet to be released, it’s hard to judge the state of the group’s cash flows.
As such, the recent boost in the Open Orphan share price seems to be primarily triggered by anticipation of future contracts rather than established fundamentals. Assuming management can deliver on expectations, the stock will likely continue to climb. However, the opposite is also true. Should shareholders be left disappointed with progress, this could very well be a temporary jump in a long-term decline.
The Bottom line
All things considered, my views on Open Orphan and its share price remain unchanged. The company is undoubtedly making good progress in establishing itself as a respected CRO. However, with a bountiful amount of competition and a relatively small pipeline of contracts, the future of Open Orphan’s share price remains unclear. Therefore, I’ll be keeping this stock on my watchlist for now.
