hVIVO plc (HVO) Earnings Call Transcript & Summary

Welcome to the Open Orphan call. [Operator Instructions] Just to remind you, this conference call is being recorded. Today, I'm pleased to present Cathal Friel, Executive Chairman of Open Orphan; and Leo Toole, Chief Financial Officer of Open Orphan. You may now begin your meeting.

Georgia, thank you very much. Good morning, everyone. We will not intend to make this too long. We'll try and wrap it up, myself and Leo, within about 20 minutes because I'm conscious, first of all, the results today are really -- we're guiding them as a kind of -- as somewhat of a nonevent, and the nonevent being we've integrated -- we've merged both companies' results. All of 12 months -- last year's hVIVO's results are in our results today. However, we didn't actually, as you know, get control of hVIVO until end of January. Also, our results show 6 months from Venn. And really, in summary, what the results for last year shows the horrendous mess both of these companies are. We acquired Venn in end of June, early July last year, and we acquired hVIVO at the end of January. However, despite the mess and those uncontrollable, unacceptable, unsustainable losses, we're guiding people to look at exactly where we've come and what we've done in the last 4 months. And on that note, I would encourage you to click through the link on [indiscernible] and it will take you to a presentation. I will bring you to a number of the slides. I'm not going to bring you through all of them. So if you click through this presentation, it will bring you straight to the Open Orphan. If you haven't got that, go to openorphan.com, Investors, and open an investor presentation page. And click down -- I think what we'll do is Page 7 because that's really -- it's what we want to talk a bit today. So we want to talk a bit today is -- Leo in a few minutes will talk you through the figures in more details of what the 2 companies did last year. But we're saying this, that's past tense. One of them, hVIVO, we have no control. We have absolutely no input at all for the figures, other than watch what we've done. So what have we done in the 4 months that we're in complete control. So Page 7. What we said we'd do, we completed the merger. Being frank and honest, it was an acquisition. Merger sounds nicer. But like Venn, we acquire companies. We don't merge them. So what we said we'd do and something that we'll see, we'd integrated these 2 businesses. We said we'd reduce the cost base. We'd expand hVIVO's laboratory services. We'd convert hVIVO's pipeline of contracts, and critically important, get profitable. What have we done in 4 months, i.e., February, March, April and May? So what have we done? We've completed above. We removed GBP 2 million from the hVIVO cost base since the end of January. We've removed GBP 3 million from the Venn cost base since the end of January. And we'll have further GBP 2.5 million reduction across the combined entity by December this year. We expect to be profitable, operationally profitable by Q3. We've rightsized the management team. We've combined the CEO and many other senior roles and -- to make it a much more slimmed down organization. I will refer you to the line I say very importantly in the earnest, where I said, "We have substantially reduced overheads. We have rightsized the management team, including the CEO and other senior roles in both Venn and hVIVO. But more importantly, we have also brought forward some long-serving and excellent line managers, heads of departments, flatting the organization and given them more autonomy and responsibility to successfully run their own areas. And this is providing very effective for the company, but also more importantly, for the individual line managers. In turn, we have completely transformed the culture of the large business to one of a vastly more open communication, sharing of knowledge and a much faster decision-making process." Really, what we're trying to do -- and we're going to stick it with our Silicon Valley friends as they move fast and break things, we've taken 2 broken companies, we're moving fast and fixing things. So I think we have a lot done in 4 months, but by hell, we have a lot more to do in another 4 months. And we're in turn given judges on what we do every 4 months. What else on Slide 7 can we talk about? First of all, we're very focused on deals and real cash. 6th of March, we announced a GBP 3.2 million pilot RSV, that's RSV vaccine. That's a vaccine that has nothing to do with COVID, signed by a European biotech. That work is already underway, and we started it, and it will be completed within another month or 2. That's GBP 3.2 million. There's a follow-on GBP 7 million starting pivotal study kicking off later this year as part of that deal. So all in all, there's GBP 10.2 million underway. 9th of March, we launched the world's first coronavirus challenge study model. That was the most important RNS I think I'll ever issue in my life because that's going to bring us on. We got a lot of flak. People thought we're mad in turning the company. We've got a kickback. However, that has now transformed the company. And hVIVO, Open Orphan is probably going to be one of the few companies in the world that will be able to speed up the arrival of COVID-19 vaccines. 23rd of April, we expanded third-party lab services, and we announced the first public contract signed with Nearmedic International. We're signing lots more of them. They're not huge contracts. It's quite funny. Now they are only GBP 300,000, GBP 400,000, GBP 500,000, GBP 600,000. In a previous life, in Venn, that's been a big contract. But there's a lot of those coming through. So that's really important. Another leg in the stool that's using our laboratory, which we need and we control for our clinical trials, but has a lot of downtime. So we're putting third-party work through that, and it's been really successful. Brandon Londt, long-serving hVIVO employee, is done running that for us, and he's fabulous. 4th of May, another contract, GBP 3.5 million RSV study with a North American biotech. And you'll see, hopefully, in the coming days or weeks, that we have a bit more update on that. And that study has also started and underway. And the business behind that is very keen to make a business splash in the coming days and weeks in North America. And that's a very important contract. But again, work in progress. These multimillion contracts will all be completed by months. They don't drift over years. 11th of May, transformational COVID-19 antibody testing business launched. And we're off with that. It's a new -- it's also a new line of business for us and really important. And lots of people are saying, "Where are you going? Where are you going?" We're trying to build us a very sustainable antibody testing. It could be at 3 months, 6 months, 9 months, pop and bubble like COVID could be. So we're being careful. And we're expanding it and we're going to try and offer a PCR test, and that's antigen testing as well. At the moment, it's only the government that does that. We're addressing the larger U.K. employer groups, and we're going to give a turnkey solution. We'll test them for antibodies. But more importantly, we're going to test employees, do they have COVID-19 or not. So for key employees going out to customer premises, such as other partners in large law firms, we can check them in the morning, and within an hour, tell them as they drive or travel to the client's firm, does this person have COVID-19 or not. So it's very important. Only us can do that turnkey package. So that's what we're really doing, and that business is exciting. So really a lot done and an awful lot more to do. I would now take you to Page 8 with a real transformational work, and this is our challenge study business. I'm not going to dwell on what challenge study is, other than they're like a IIb clinical trial, 2 (sic) [ b ] for Bravo. And basically, what we do, we bring volunteers in, and we can test, does the vaccine work or not in our clinic. But the really important one is, there's currently 156 COVID-19 vaccines development around the world. There's only 12 real -- 20 real ones, i.e., one's going into the clinic, by that, we mean going into human beings. And of those 20 real ones, we're in active discussions with 12, and we would expect and hope to sign 6 to 8 of those contracts later this year. Each of those contracts could be in the GBP 8 million to GBP 10 million territory. So you can imagine that is hugely transformational to this little company. And all we can say is watch that space, and we believe that is so utterly transformational. Page 9. That's how challenge study models work. It's unique. hVIVO are the world leaders in testing vaccines and antivirals through challenge studies. Last year, that wasn't sexy. February-March, it was. And suddenly, it's pretty cool to be the world leader in the testing vaccines. Even my 12-year-old child seems to know what the testing of vaccines and antivirals is all about, whereas, his dad, 6 months ago, wasn't even sure what an antiviral was. So it's the luckiest transaction I think I'll every do in my life, acquiring hVIVO. I have a big part of my net worth in this company, about GBP 2 million of personal cash. It was a big risk. We bought, as you've seen the results, a massively loss-making company, but by hell, have we turned it around. That's Page 9. Once at the last page, I want to hand over to Leo. And I'll briefly take you to Page 10. And this is really important. hVIVO struggled over the years because it's a one-trick pony. It did these big challenge studies. It did one at a time, get flu one year, RSV another year. What we wanted to do is build a really sustainable business model, and part of that is build out laboratory service and testing. We all know Germany is a way ahead of us in Britain in testing. So we have a lab with testing capability. And you've all seen, we've been a lot noisy with it. We've got a COVID antibody testing capability. But we're now expanding that to PCR and turnkey. We're going to be offering that to major employers as a package, a long-term sustainable model where we'll do long-term testing, not just for antibodies, not just antigen, which is happening right now, but other, influenza, et cetera. We're really excited. That business will be adding a lot more revenue in the months ahead. I do want people to figure out about Page 11. Good old Open Orphan genomic health data platform. As you know, we're talking less about orphan drugs these days and a lot more of infectious diseases. And what we're doing here, hVIVO have been testing vaccines for almost 30 years: 12 years as hVIVO, and the previous almost 20 years as Retroscreen, and going back as far as the Salisbury Flu Clinic in 1947. They're the world's largest database of infectious disease progression. It's never been monetized, exactly like a lot of these things in companies [indiscernible]. I classify hVIVO as a bit [indiscernible]. So we are now going to take that infectious disease database, use our Open Orphan genomic health data plan as a platform and take that data and monetize over the weeks and months. And you'll hear a lot more about that as we go forward. That now takes me to Leo, who'll bring you maybe through an outline of what these financials are and where we are. Leo, over to you.

Thank you, Cathal, and good morning, everyone. I would just first like to draw your attention to the front sheet of the RNS that you received. Just to highlight a couple of key numbers in our results. Firstly, as reported, we're reporting really reflecting reverse merger accounting, and that distorts the numbers a little bit from our true performance. But on a reported basis, which really reflects 6 months of Venn performance, we delivered GBP 4 million revenue and GBP 6 million -- GBP 6.5 million in losses. The normalized real performance of the business, as Cathal talked about earlier, reflects EUR 27.1 million across our combined business, hVIVO and Open Orphan, in revenues and normalized EBITDA before exceptional items of GBP 10.1 million. So those are our official numbers. But really, the way we think about those numbers has really been out of date. In effect, hVIVO is already pivoting to a service model, and the Venn, Open Orphan business, this was prior to the major restructuring and turnaround that we've started since the merger in January. And in effect, what we see coming through in our numbers is about GBP 4 million in savings that really originate back in 2019 in hVIVO. The full year effect of those, about GBP 5 million of savings of work that we've already done year-to-date across both businesses, and we anticipate another EUR 2.5 million of savings on projects that on -- restructuring work that is ongoing. So when you combine all of those savings strides, we're already well on our way to turn around the poor performance or the unsustainable performance of last year. So that's something we're happy with and want to continue driving forward. If I could then draw your attention, please, to Slide 12 of the deck. And then this is really just to take a moment to remind you of the, I suppose, core drivers of our business model. And fundamentally, within our clinic, we need 3 to 4 studies that were over our breakeven point. And even without COVID, on our main challenge business, we're tracking to hit those numbers for 2020. Also, in the laboratory services, you can see that we've ample capacity to grow that service line. Far from being just an internal service center for the clinic, we can actually start monetizing into making money. And this is before we look to exploit the exciting opportunities of a COVID challenge model and of broadening antibody testing. Moving on to Slide 13. Just a couple of brief words in relation to our current trading and our outlook. Clearly, we've had some very good contract wins on our base hVIVO business, and that is moving along nicely, and we see continued strong pipeline delivery on that business. So that's very, very good. Then on the Venn side, our ambition is probably just flat this year given that we're doing -- we're turning around that business. But we still have a really strong installed base of big name pharmas that are delivering ongoing sticky repeat revenue. So that's -- so we are satisfied that we're investing and doing the right thing in those businesses. Back to you, Cathal?

Leo, thank you very much for that. I'll briefly take you now to Slide 14. And this is our prospect pipeline that's been expanded with COVID-19. And look, please bear in mind that's now Open Orphan, a large group, has a very sustainable, growing, soon-to-be profitable, rapidly growing non-COVID business model. We all know there's a concern. COVID could be a bubble, and it comes or goes. But so look at Slide 14. Without COVID, we have a pipeline that's now grown to GBP 100 million. That's purely non-COVID work, and that's in dark blue, that's between Venn and hVIVO. We've increased that pipeline to 20% since we acquired the company. It had been GBP 80 million. It's now a GBP 100 million. With the COVID, and we're trying to be moderate, the blue at the bottom, the blue skies, has been potential. But those blue skies are suddenly becoming more realistic. The first blue sky is a substantial new pipeline of opportunity to develop COVID challenge studies. There's potentially GBP 35 million to GBP 70 million in revenue over the coming year or so there. Third-party pharma COVID laboratory testing opportunities, and that's GBP 5 million to GBP 10 million testing COVID assays in our lab. And then the rollout of the COVID antibody testing could be GBP 10 million to GBP 30 million with further upside. So a prospect pipeline between the dark blue, non-COVID; and the light blue, COVID, well in excess of GBP 100 million, GBP 160 million. So I think that is a good place. As I keep saying, we have a lot done in 4 months, but let's see what more we can do in the coming 4 months. Judge us on incremental 4 months, not on an annualized basis. I'll skip through 15, other than hVIVO is now known by every vaccine manufacturer around the world. And they're coming knocking on our door, not the other way around. And that's clear, we raised the profile immensely within the community. I'll skip Page 16. I would like then to bring you on to, really, the last one. What I want to bring you would be Slide 18. And this is, again, what we're trying to get across, we have a number of transformational events. I know we're at about GBP 79 million, GBP 80 million market cap at the moment, but we believe we can do a lot more in the coming months. And in addition to the bang for our buck to get the COVID challenge study models going, to get the testing going, look at this, Page 18, we now have, on the right side, a sustainable, growing non-COVID business model and services. On the left-hand side, with noncore assets, the Uncle Neil, Neil Woodford gave us. They bequeathed us, we took over this company. Bear in mind, Neil and his friends put a GBP 113 million to hVIVO, and we acquired it for GBP 13 million in January. That's a lot of money. But one of the core assets he left for us, we have a 49% stake in Imutex. It's 1 of 2 Phase III-ready universal flu vaccines in the world. And they are also one of the few Phase II-ready universe mosquito saliva vaccines. We're in conversations with our colleagues and seek to own 51%. And we've clearly said in the following slide, and this is all very public, Slide 20, that there's a strategic plan underway, how we're looking to monetize that asset. It's been sitting there. And like a lot of things in the company, the prior management team didn't get ready to monetize and not doing much with it. We're going to plan in the coming months to do something seriously exciting. One thing, we could sell it. Just several weeks ago, Merck bought a similar company called Themis in Vienna, Austria. Price was never disclosed. Merger market said it was sold so for somewhere between GBP 100 million and GBP 500 million. Our information tells that it was closer to the GBP 500 million rather than GBP 100 million. And just imagine, we could have 51% stake in something like that. If we sell it, that will be immediately paid out in a cash dividend to all shareholders. We don't intend holding large bunches of cash, and we don't intend to [indiscernible] that company. Another plan for it, it might be more exciting, again, you can't go with a one plan trying to sell it. The other way to flesh out [indiscernible] is to bundle 100% of Imutex. We've also -- Neil left us with 62.6% of PrEP Pharma. It's North American biotech, and we have it for free at the moment. But it could be exciting. They are about to sign a very large Chinese deal. It has a viral prophylactic with expected utility against, guess what, COVID-19. We also own 100% of a repurposed influenza immune modulator. We're planning on bundling all 3 of them, 100% of each, and potentially reverse them into NASDAQ's back and was also dual-listed in London. And through a dividend species, every Open Orphan shareholder in the coming months could end up holding a stake in -- a share in Open Orphan and like similar share in the vaccine development company listed in NASDAQ. We don't believe vaccine products mix with profitable service. They are 2 very different businesses. But you, as shareholders, and all of us should have a stake in both of them. So leave that with us. It's work in progress. And that is the next, I would say, big transformational piece of business we're going to do. So in summary, we've now fixed these horrendously loss-making business, as you'll see for those numbers last year. We have a lot done. We have a lot more to do. And I think watch us as we're going to have a really exciting 3 to 4 months coming up. And we have now a very much growing non-COVID business. If COVID disappeared tomorrow morning, we've got a fabulous, successful, growing business. And I think we all know, unfortunately, COVID is going to be around for a while, more than tomorrow. And out of that, we have a very sustainable, growing COVID business as well. So we've got to 2 of them. And then the banks in the book, these noncore assets, if we spend them off or sell them, it's still in. So in summary, I think that's where we are. A lot done, but an awful lot more to do. Just to give you an idea, in cash, we're going to say we have close to an GBP 80 million market cap. Exactly 15 months ago, our market cap in Venn was GBP 2 million and we were with no cash. As of earlier this week, I think it was corrected, but we're in the region of about EUR 16 million in the bank. So that's in pretty good shape. We're not going to blow it. That's going to keep us supported. We're dealing with the mega pharmas in the world. And finally, share price. We did have a share price about 16p a few weeks ago. And one of our last legacy shareholders in hVIVO, the old Woodford stake, was acquired by Acacia, who acquired 14%, 15% of the stakes. They promised long-term love. They'll be here long time. And within days, they dumped our stock. And it was across London. We tried -- if they told us, we could have placed that stock with any of our institutional shareholders, but for some reason, they gave it to market makers who've continued. So unfortunately, our share price has come back from 16p to 11p or 12p. There's a bit of a mopping up to be done, and that's underway. It's taken a little while because Acacia is just keen to keep dripping the shares in the public market, and they don't want to sell them to our institutions. But bear with us. As soon as that overhang is gone, I think we'll see the share price correction accordingly. And as always, we'll have substantial news flow along the way. So without further ado, I will hand over to any of your questions. Feel free to direct them to either myself or Leo, and we'll do our best to give you as much information as possible.

[Operator Instructions] Right. So our first question is from [ John Flynn ], private investor.

When will the COVID-19 challenge model be complete? And does this have to be regularly approved before use?

John, Cathal here. And very good question. Look, we only started this in March, and that was a season of coronavirus. We've moved very fast. And as of 4 weeks ago, we've now gone with COVID wild type. It will attenuated, so it won't be toxic. And it will be around the turn of the year it will be available. And we've got any amount of companies who are looking to make use of that. So that's where it is. And your second question again, John, was?

Does it have to be approved before using it in trial?

Yes. And [ one of them ] based here in Britain, we have a long history of MHRA approvals. We don't have to get EMA. We don't have to go to FDA because Britain as one country is consistently doing challenge studies, coming back to the Salisbury Flu Clinic. That's our ancestry where we came from, Salisbury Flu Clinic. So our ones is not IND. The approval process is really simple. We've done dozens of them. So the approval process is simple, and you can take it that will happen in the coming months.

And our next question is from Arshad Ahad from finnCap.

Arshad Ahad. I just wanted to [indiscernible] some details on your planned PCR testing, if you have any time lines about when that's going to roll out. And then the second question is, do you have any update on how the antibody testing is going?

All right. Thank you very much. Yes. First one, we've only, in the last week or so, start talking about the PCR testing. So what we've done -- there's 3 kits available, the Abbott, the Roche and the Quotient, that have 100% accuracy and close to 100% specificity. There is fingerprint chips that don't give any accuracy. I think MHRA has asked them to be banned. So that was an interesting proposition. We could charge out to the market and compete with Roche and Abbott on a fight to the bottom. We're not doing that. We're going purely to the employer groups. We want to build around that 3 months, 6 months, 9 months bubble when people -- and maybe in 9 months don't want any antibodies. So we're going to the large employer groups and offering them a package saying, "Look, we've got PCR testing capability in our facility with antibody testing capability. How about we build long-term relationships?" And that is moving along and that's taking the speed. So I'm saying bear with us. Rather than buying out and saying we're doing 2,000 and 3,000 of these massive big short-term contracts, we want to build long-term sustainable ones. And the model we're seeing is large employer groups going forward are now having these client engagements, particularly audit firms, having auditors out to do audits; and particularly people at security in Heathrow. They wanted to say, "Will this person -- he's COVID-free today or this person has had antibodies." So that's what we're doing. So does that make sense? So yes, it's rolling out. It's coming to deliver nicely. But look, everything we're trying to do, rather than go for a big bang bubble, we want to build it sustainable and have a business at 9, 12 months with an ongoing -- and we're reflecting that in Germany. The bid is on long-term testing. I think the U.K. is catching up rapidly. We want to be part of that long-term testing program for large employer groups.

And our next question is from [ Ben Nathan ].

Can you hear me well?

Loud and clear, [ Ben ].

A quick question for you just in regards to the strategy around, obviously, antibody testing. I work for a rather large institution in Canary Wharf. And the sensitivity around some of the discussions we've had -- I mean, firstly, I realize what the strategy is. How is that being conveyed, obviously, to potential customers of yours? Obviously, the conversations we have here at a senior level is we don't want to be taking -- obviously, if things were to get out into the public that we're taking supply from the NHS, et cetera, you're a big greedy institution, et cetera. You're stripping supply. Is that how things are being marketed?

Yes. And I'm glad you asked that question. Yes. Look, Roche -- and we'll be very clear, we're fast followers of the Quotient, #3, and we're nimble so as Open Orphan. So Roche and Abbott have gone in to NHS PAG with a big tens of million pounds of equipment investment and they're done. But already, you're absolutely right, they're rushing in the capability. So for large employers groups, with NHS, you will get [ booked ] and you're stealing them. So we're going [indiscernible] for us and "Look, we will make antibody testing available. We will put nursing staff or [indiscernible] on your side to collect blood samples. Results are back the next day." So with [ big employer groups ], we're not trying to give a big dime. And lots of people saying, "Cathal, when are you going [indiscernible] the test in tens of thousands?" We could do that [indiscernible] COVID is all over. We're carefully one foot forward and we'll do the package to large employer groups as we say we'll do. Antibody testing, we'll do it on site, and we're starting. But more importantly, we'll also supply [ demand for ] COVID-19 testing, do these people have it or not, and really providing the [indiscernible] so do want. And next year, probably do influenza tests. Employer groups will be worried, do people -- are they carrying influenza? So we'd love to, Ben. Feel free to make contact with off-line. We'd want to talk to your employer, and we'll provide a turnkey package. So if you want, do please get in contact directly with me after the call, and we would love to roll out our offer to your employer.

Yes, that would be great. So obviously, I think you obviously were in a very sensitive industry historically since the GFC in 2008. And I guess the strategy, we're not aligned with the rest of our industry in terms of -- I guess, the sensitive point for hVIVO is -- the fact is you're not -- you're B2B. You're not taking supply away from NHS, et cetera. So private institutions are not competing with the NHS trying to get their testing through, which is obviously a political hot potato as far as we're concerned from a PR perspective.

Ben, absolutely. And if you think where we -- we're based in East London. So we're 10-minute taxi ride to the city and 15-minute taxi ride to Canary Wharf. So we can blood at 9:00 in the morning, and we have the results back 3 hours later. So absolutely, Ben. Call us immediately after this call.

And that appears to be the end of all questions. [Operator Instructions]. No, I think that's it.

Georgia. Thank you very much. Look, thanks, everybody, for showing interest in joining our call this morning. We hopefully want to reward all shareholders, all stakeholders by growing long-term sustainable business. I'm making it clear. Some people simply quite do not triple 5x extra share price up. We didn't want to do that. We want to build it sustainably. We have doubled. We have, of course, tripled. Obviously, that's sustainable rather than get caught up in the COVID bubble. So we're looking forward to updating you going forward, and watch the space is the way we put it. Thank you very much.

This now concludes today's call. Thank you all for joining. You may now disconnect your lines.