hVIVO plc (HVO) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the hVIVO Interim Results Investor Presentation. [Operator Instructions]. Before we begin, we'd like to submit the following poll and if you give that your kind attention, I'm sure the company will be most grateful. I'd like to hand over to the management team today. Mo, good afternoon.

Thank you, [ Mark ]. Good afternoon and good evening, everyone. Welcome to hVIVO's interim results covering the period of first half of 2026. This is the obligatory disclaimer we have for publicly listed companies under AIM. I'm Yamin Mo Khan, I'm the CEO of hVIVO. I've been here for about 4.5 years. On my right here is Stephen Pinkerton, who's our CFO and has been CFO for over 4 years and on my left, we have Dr. Andrew Catchpole, who's our Chief Scientific Officer, and he's been with the company for over 20 years and has really been the brains behind the development of our challenge model that we see in action these days. So we'll come straight on to the interim results. So for those of you who maybe don't know about the company, we are a full-service early-stage clinical development provider, providing nonclinical and clinical services to both the biotech and the pharma industry. We have locations across Europe, in France, Germany, Netherlands and also the U.K. We have clinical trial units in London, both in Whitechapel and in Canary Wharf and 3 units in Germany in Kiel, Mannheim and the recently acquired unit in Berlin. In the Netherlands, in both Breda and in Leiden, we have a consulting arm and then our biometry, which is data management and biostatistics in Paris. So as you can see, we have grown significantly both with regards to the number of staff we have and also the number of countries we cover across Europe. Late last year, we reorganized the company into 4 distinct service lines. So the first line is the consulting arm where we help customers design new clinical trials, provide them consulting services to meet with regulatory bodies across different countries and also look at what's called the preclinical data, the CMC and the drug formulation, the PK and so on. Secondly, we have the clinical trial unit. This is where we typically conduct all our nonhuman challenge trials, so the Phase I and the Phase II clinical trial as well as Phase III site services. And then, of course, the original human challenge trial service line still continues to exist and grow. We also have a laboratory stand-alone service line. So we are not only do labs cater for the clinical trials and the human challenge trials, but now on their own merit, we can outsource this as a stand-alone service to customers. So the reason why we have done this is that we want to be able to provide end-to-end service to our customers. The way I look at this is we have 4 distinct verticals, but we have one horizontal in the sense that we can take a client through from preclinical. So this is before even the drug has gone into humans all the way to what's called proof of concept or Phase II, where you expect to see a signal of effectiveness for the drug in a human body. This also means that our addressable market has increased, and we're able to talk to our customers independent of what stage they're at during the drug development. Whereas historically, we typically spoke to them around the Phase II stage, which is the human challenge trial phase. Now whether they're in nonclinical, preclinical or across the different phases of clinical development, we have a service that we can sell. So that basically means that effectively every drug developer is a potential client of ours. Now coming on to our H1 2026 results. Stephen will provide a little bit more color, but we already provided a fairly detailed trading update in July of this year, and we're basically mostly reinstating the numbers we provided then in the first half of 2026. So GBP 16.3 million of revenue. We said low single-digit EBITDA loss and then GBP 13 million in cash at the end of June. We've now given guidance towards the full year 2026, and we're stating around GBP 47 million. So this is slightly lower than what's currently in the consensus, and this is mainly due to deferment and not cancellations. So we're expecting our contracts to continue to execute. But unfortunately, for a number of reasons, a couple of contracts have been delayed and pushed into 2027 and 2028. But we have seen significant growth across our new sales and new contracts, including in human challenge trials we signed 3 different human challenge trials, Andrew will provide more details on that. And this is helped by the fact that a 45% year-on-year increase in new proposals, 26% increase in the value of the proposals, good conversion rates, building up the orderbook to GBP 65 million underlying and then with the addition of the acquisition in Berlin, taking this up to GBP 72 million. So that really gives us excellent visibility for the rest of this year and good visibility into 2027. This is the highest the orderbook has been in the history of the company. So I feel very confident that we are on the up. We believe strongly that the first half of 2026 is the trough, and we'll see almost doubling of the revenue from the first half to the second half, and we expect a year-to-year growth from '26 to '27 that we are turning significant.

So thanks. And just talking about the H1 performance versus last year 2025 H1 performance, GBP 24 million versus GBP 16.3 million. And you can see the huge difference here is the decline in the HCT revenues year-on-year. And if you remember, in 2025, we did have a high level of cancellations, and that's part of it. Also in the current H1 2026, we did expect some higher HCT revenue, but that has been pushed out, as Mo just mentioned, to '27 and '28 as well as into the second half of 2026. The clinical services has increased, but actually year-on-year rates on a like-for-like basis, it's flatlined. It is just because -- it's an additional million that relates to the -- it's a full year impact of the acquisitions that we made in January 2025. Labs is a good solid increase. It's growing 110%. It's off a slightly lower base, but it has got a lot of potential. We have invested heavily in our lab space in London, and we're beginning to get traction there and that's good to see, and that is building up nicely. Consultancy, part of the delays that we have faced in clinical services and HCT has also impacted the consultancy work as well. So going on to what we look out for the rest of the year. You can see the second half of the year, we're looking at delivering GBP 31 million, and it's almost double what we delivered in H1 2026. This is what we guided. We did guide that we will be H2 weighted. GBP 31 million includes GBP 3 million from the acquisition that we made at the beginning of the year, at least in August. So it is backed by a strong orderbook, and it's a strong performance and therefore, we're guiding now GBP 47 million for the rest of the year, for the full year. It does go back to the fact that we have had -- I think one of the things I take away is that when we set the guidance of about GBP 50 million, GBP 51 million for the core business, all those contracts that we expected because we started from a very low orderbook basis of GBP 30 million has materialized. What we haven't really understood was that some of these things were delayed more than we expected because we always hedge those bets, but some of that is out of our control, and that's why it's pushed on. But that bodes well for 2027. So lower revenue means lower output and EBITDA. So we made an EBITDA loss of GBP 4.5 million. This is sort of an analysis between the profit that we made in the first half of H1 last year. It's the HCT revenue and if you remember, in 2025, we had a lot of cancellations. That cancellations didn't have any variable spend attached to it, so it flows through straight through. As well as we also spent in 2025, we were doing some -- building some new models, which are completed in 2025. And as we're no longer doing that, the difference in revenue from GBP 16 million to GBP 24 million has sort of dropped through to the bottom line from an operational point of view. Then full year impact of the acquisitions and overheads is obviously added to our cost base of GBP 0.5 million, but we have also made some savings during the year on a year-on-year basis. We do maintain a very tight control of our costs. So obviously, with that higher revenue in the second half of the year of GBP 31 million, we do expect to be -- we are forecasting to be EBITDA positive. So we will reduce that loss to a low single-digit loss for the full year. So this cash flow does -- this is a waterfall from the beginning of the year, GBP 14.3 million and GBP 13 million at the half year. Obviously, cash from operations is going to be negative because we made a loss of GBP 4.5 million in EBITDA. But what's interesting to see is the GBP 4.5 million net working capital movement is positive and that is a turnaround. In the last 3 reporting periods that we've done -- I have been presenting at, we have had net working capital negative. So that is a positive, and that's why the cash has held up nicely from GBP 14.3 million to GBP 13 million. Some of that will reduce in the second half, that GBP 14.5 million will reduce, and that's because it is driven by some of the HCT trials that we have signed up, the 3 that we've signed up this year, and some of that gets -- starts getting delivered in the second half of the year. And so it will reduce. And so cash will end up lower at the end of December by down to about GBP 8 million or GBP 9 million. So we do expect cash to reduce, but that's also because at the end -- in the second half of the year, we do have a lot of field study work and so it will impact our debtors because CROs take a long time to pay you on delivery. It can be anything up to 90 days and we do have a high volume of work that we'll be delivering in October, November and December. So cash will be lower by the end of December. But with the strength of the orderbook going forward, cash is looking reasonably good in place. The other thing to note is that the acquisition we've made will have no impact on our cash position to date. Investments, we haven't had to make much investments in the business. We're already fully quite well invested. There is maintenance investment that happens, but it's not very significant at this stage. Next slide.

So I mean, this is my favorite slide of the whole presentation because it's the most important parameter looking forward when you project what's going to happen with this company over the next 6, 12, 18 months. So you can see the way the orderbook has progressed since 2023 and how we've seen that slow decline due to market conditions, drop in HCTs and so on. But we saw increasing proposals, especially from towards the end of last year into the first half of this year and second half of this year. And some of those have now been contracted. So remember, we changed the algorithm of how we determine our orderbook. So we want to be more conservative and try and reduce the cancellation rates that we saw previously in 2025. So as a result, the underlying orderbook at the end of June this year stood at GBP 65 million. And with the addition of the acquisition of Berlin has increased to GBP 72 million. So this gives us excellent visibility, as I said, for this year, but also for 2027. In fact, some of this orderbook goes straight into 2028. Now this is on top of additional awards we've had that now have been fully contracted. So this is the main reason why I feel confident about 2027 and what we can do and why we are forecasting a significant growth from '26 to '27. And with all of this, human challenge trials remain our core business, but we are not just solely relying on human challenge trials anymore. So you can see the dark green segment of this pie, this donut and how that's decreasing. And that's partly due to inorganic addition of new clinical trial services as well as organic growth in the clinical trial business as well as the lab business, especially. And I think this to me is key that we're no longer a niche provider in human challenge trials. We're much more diversified, resilient provider of clinical and drug development services. But as I mentioned, human challenge trial is still a key differentiator for us. This also means that the addressable market for us has significantly increased. We are now able to run clinical trials in a number of therapeutic areas and not just be focused on infectious diseases. It also means that we have a greater number of customers providing us with revenue. So we're not relying on 1 or 2 top clients and also means that we get more revenue per client because we are engaging with our customers at a much earlier stage and continuing with them through the life cycle of product development. A key example of this was Cidara with whom we ran a human challenge trial and then a Phase II field trial, a Phase III trial and laboratory services. So in fact, when you look at the metrics, only 1/3 of the total revenue we recognized with the program came from human challenge trials. The rest of the non-challenge trial related revenue. And I think that to me really speaks volumes when we think about growing the company forward and how we can maximize revenue per client.

As Mo mentioned, human challenge trials are still a really important part of our business, and we still are attracting customers to do that type of work with us. And that's mainly because they do get their data so much faster. So from the moment they contract with us in that clinical trial agreement, they can get their data within 12 months, which is about 3.5x faster than if they did it with the natural infection studies. And of course, time to market is really important for these products. So that is absolutely everything for them. And what we've seen in 2026 is there has been a sudden shift of the type of studies that we're getting. So you're probably aware of some sort of anti-vaccine movements in some parts of the world. What we're seeing in 2026 is an actual shift towards slightly more antiviral studies coming towards us now than the vaccine studies and this is cyclical. This does go in different ways, but it's really positive at the moment that we are seeing antivirals getting good funding and these people are coming to us to do these studies because we are the world leader in doing human challenge studies. And that really comes from our extensive experience in doing it and of course, the very important infrastructure you need to be able to deliver that. So of course, that's a 50-bed units, very vital delivering that, our dedicated recruitment team and the FluCamp database, all of those combined are really vital to be able to deliver these challenge studies. And not only that, they also act as a barrier to entry for others and the competition in this area. So because we're infectious disease experts, we're able to offer these studies and actually design them as well and that's really where challenge studies underpin the whole of this business, because they do interact with all the other 3 pillars of the business. So when the contract comes in, unlike a traditional clinical trial where the sponsors come in and give you the protocol to run with the challenge studies, it's very specialized and you need the infectious disease and the challenge model expertise to be able to design those studies. So we design studies for our clients. And we use a consultancy group to do that and to use the medical writing to build around it. Our laboratories, of course, are analyzing the samples and doing the screening for the trials. Our recruitment team coming from the clinical trials sites and of course, the 50-bed unit to actually deliver these. So it truly is an integrated platform. And on the next slide, we can go and talk to you about the actual contract wins that we've had recently. So you probably would have seen the Phase III pivotal trial in Bordetella pertussis, that's whooping cough. This is a really big moment. This is a challenge study is being used for efficacy for a Phase III trial. It's one of the first times that's been done. So this is a really big important study, not just for hVIVO, but actually for the scientific community. In addition to that, we've also signed 2 influenza trials, one for monoclonal antibody test for flu prevention and also prophylactic flu prevention again for the Traws client. So we are seeing a very strong orderbook and growth back returning into the challenge business. And as I mentioned really is creating good opportunities and as we are now talking to our clients earlier, and we're able to offer Phase I studies, we're able to do Phase I combined with human challenge studies. So we get that earlier engagement and the earlier engagement means we can then have a greater platform to sell. So for example, we've got clients coming in also for the laboratory work preclinically and then we can extend to the laboratory work for the challenge studies and then that extends on to support them into Phase II, Phase III studies. We were not able to do that until we moved into our new facility 2 years ago, because we've reached capacity in the labs. The labs have now got much more capacity and able to support our clients moving forward. So that really does drive pipelines, not just in challenge trials, but of course, in the lab business as well. In addition to the traditional infectious disease market for challenge studies, we're actually seeing this branch out into new types of areas as well. So COPD and asthma challenge studies where we're still using viral pathogens, but instead of being conducted in healthy individuals being conducted in asthma and COPD challenge. So we are seeing some emerging new opportunities into this space. On the right-hand side is a really important graph actually because it's a nuance about how these contracts are run. Our customers understand that doing challenge studies are unique, and they need to reserve their space in this very specialized unit because of that, on the point of contract signature, there is a milestone payment. Hence, we're cash positive right from the very point of contract signature. That's the dark line on the graph on the right-hand side, and the green line is the revenue. And then once we start to actually recruit the volunteers, our clients also understand that these challenge studies need a big recruitment engine to screen lots of people because we need to screen people to make sure they don't have too high antibodies against the pathogens so they will get sick. That's different from any other type of trial. So because of that very large screening, we need to have an influx of a milestone at that point. So again, that's the next inflection you really see is a milestone payment upfront to cover those screening costs. And this is why for the large majority of the life cycle of a challenge study, actually, they're cash positive throughout. So what we are seeing just to really summarize on the challenge study, we are seeing this core differentiator driving our growth still and creating new opportunities. So we're actually really pleased with how this has picked back up.

Thank you, Andrew. So I just want to refer us back to some of the strategic growth priorities that we set ourselves earlier this year and what progress we have made on those. So first one is cardiometabolic. So as you know, our Mannheim colleagues, the clinical trial unit based there is led by a key opinion leader endocrinologist. So he's an expert in diabetes, obesity or what we call the cardiometabolic therapeutic area. And I think we've been able to capture a significant amount of business related to obesity and diabetes. I'm sure all of you are aware the big boom in obesity clinical research development and all that entail. So as a result, we've been able to recruit patients using a flu equivalent that we launched in Germany late last year. On top of that, we've been able to create some really good relationship with midsized pharma as well as providing clinical trial services to a lot of the big pharma that I'm sure you know the names of who are working in obesity and diabetes. So we made significant progress in that and done quite a few deals in the obesity area. On respiratory, of course, we've got inherent experience in respiratory considering all of the human challenge trials we have run to date at least have been in what we call respiratory diseases, the fact that they are infectious diseases, but they impact the respiratory system. So we already have in-house experts in dealing with respiratory diseases. And we've utilized that to basically prepare ourselves to run nonhuman challenge trials in respiratory diseases such as CRO -- COPD and also asthma. Now this market really, we're targeting not only pharma biotech, but also other CROs whom we are helping to recruit patients into large-scale clinical trials. We've also got an ongoing prescreening clinical trial, which we use to supplement our database, and we have already been awarded several projects in these areas. The third piece to this is laboratory. So as I mentioned already, we started as a company as a laboratory service provider so -- and then we evolved into the laboratory being the support service for human challenge trials. And since the move to Wharf, we now have the capability and the capacity to run stand-alone laboratory project. And that's what we've been able to do. So not only do this for the human challenge trials we run, but also been able to do stand-alone project. And one of the key advantages of this is that we're able to create a relationship with the customer at an early stage. So we now have a case where we have a client with whom we are providing very early laboratory services and now moving into potentially a human challenge trial. So that's really kind of the key model for us when we look at the end-to-end unified platform. In addition, we -- last year, we invested in some new capabilities with regards to next-gen sequencing and ddPCR, and those are already producing excellent revenues as they go forward. So this is another area that we are developing, we're hoping to continue to increase the orderbook and also, you will see higher revenue coming from the laboratory service line. So when you look at the broader market, what we now see is that there is more funding for the biotechs. There is more M&A activity within the biopharma industry and people are making decisions. So I know I've spoken to you over the last 12, 18 months and always stated that we have this huge sales pipeline, but -- and I've also said that the key risk with that has been that, that sales pipeline has not always been converted into what we call it contracted work or contracted orderbook, but now we're seeing that decision-making. So as I mentioned, we have a current GBP 72 million orderbook First half last year, it was GBP 27 million, end of '25, it was GBP 30 million and now it's GBP 72 million. So clients are making such -- they are signing contracts and progressing. Admittedly, a couple of projects have been deferred, which have impacted 2026, but they're not lost or canceled, and we hope to progress them in '27 as well as going into 2028. We also know that biotechs are doing more and more clinical research because the big pharma with what we call this huge patent cliff they're approaching in the next 5 years will need to supplement their pipeline with new M&A activity buying new biotech assets. So the biotechs are busy developing these drugs and we, as a one-stop shop for small companies are best suited in helping these customers to go from preclinical, so just about getting into humans to proof of concept, which is a value inflection point and they can demand big money from big pharma. In addition to this, when it comes to infectious diseases, we've now also seen more interest in Eli Lilly, for example, acquired 3 vaccine companies in a week. So that shows that Eli Lilly, who have really deep pockets are also interested in the ID space. And obesity, of course, I've already mentioned there continues to be huge interest in drug development in that area. We acquired Berlin, CRS Berlin in August of this year and if you ask me why do we do this, and there's kind of a number of reasons. Of course, the numbers were very attractive. So the financial terms, which Stephen will talk about were very, very good to us, we felt. The fact that it's able to expand into new areas, so dermatology and women's health was key. The other key item for us was that we are able to cross-sell to these customers. So remember, the platform we have for clinical trial is exactly the same. So the facilities, the resources, the processes, the system that we utilize, whether we run clinical trials in infectious disease or respiratory or cardiometabolic or women's health or dermatology are exactly the same. So without additional huge CapEx or anything, we're still able to service these different types of therapeutic areas with the same platform. The only difference is the fact that we may have 1 or 2 key opinion leaders who can show disease expertise when they're designing and executing these clinical trials. So this also means that we have access to a much larger catchment area, Berlin being a very major city, has over 6 million potential patient population. So recruitment for new clinical trials makes this much easier. It's also increased the capacity to over 200 beds and gives us the option to run multisite large clinical trials. So all under one umbrella. Remember, our key differentiator compared to most of the CRO is the human challenge trial. But the second one is that we own our clinical sites. So there are not many CROs out there who own multiple sites where they can run their own clinical trials and that's a key thing for us. Dermatology and women's health are both good growing disease areas, and we expect to see increased interest in both of these. Dermatology also falls under immunology. So indications like atopic dermatitis are on the up and a lot more drugs are being studied in there. Women's health is generally underserved when it comes to drug development, and we expect to see increases in this area going forward. So all of this frankly, makes us a leading European provider in early clinical development.

So some of the highlights on the acquisition costs. So we paid EUR 25,000 just to get the deal over the line, obviously, it's a minimal effect on our cash flow. The earn-out for the deal is about -- is 18% of each revenue across '26, '27 and '28, the annual revenue achieved in those years, across those 3 years. The effective rate is slightly less because of the 18% only applies to certain revenues and other revenues are slightly less than that. So in essence, we're expecting a sort of an earn-out of roughly EUR 6 million. And if we deduct the pension liability that we're taking on, then the net impact that we'll be paying out in cash terms is EUR 4 million and it is self-funding. The business is profitable. It's generating [indiscernible] -- it's generating good revenue, it is profitable, it is generating cash and that cash will be more than sufficient to pay the earn-outs. The other thing to understand that the earn-out is scalable. It's scaled up and down and there's a minimum level of revenue that has to be achieved before the earn-out starts kicking in. So effectively, you're getting -- you're paying about 58p in the pound for every pound of revenue, which we think is a really good deal less the pension liability. The impact on this year's results, we'll get 3 million, and this is the incremental revenue to the group. So it's -- they actually -- if you look at their revenue, we guided in the RNS was EUR 10 million. About 18% of that revenue is already work that we -- that is outsourced to hVIVO, the other companies of hVIVO and other services HVIVO provide to deliver that -- sort of that revenue. So that 3 million is net of work that we provide from our other companies to deliver that figure. We are very ingrained with CRS Berlin EBITDA contribution will be 0.5 million, they are having a strong H2 as well. They did have a slow start in the year, but the full year is looking good and certainly in the 4 months that we own them, they will deliver a contribution margin of 0.5 million. Contracted orderbook is really solid and I think what I really like about it is that it's on the top end. So if you think about clinical services, because of the short time scale on getting new contracts on board, generally, at the beginning of the year, you're looking to be about 50% or 60% contracted and these guys are just over 60% contracted of the next 12 months of revenue that we're forecasting for them. So it is a good orderbook and then they do have a good pipeline backing it up. So I think that's to give you a sort of flavor. In summary, it's earnings accretive, it's self-funding and it's backed up by a very good orderbook. So it's a good deal.

Thank you, Stephen. So just to sum up, I appreciate with the headwinds we've had in 2026, we are showing a guidance of GBP 47 million. But you also have to remember the orderbook coming from '25 and '26 was GBP 30 million and we've done a lot of work to build that orderbook up. But unfortunately, it was too late for the first half. The second half, the revenue is almost doubling. But even then, a couple of projects have been deferred impacting the full year 2026. But as I said, that revenue goes into '27 and '28. But you can see that staggered growth, right? So you see increase in proposals, you see increase in orderbook and then you see increase in revenue. And that's the logical sequence we expect to see how this company will grow. The CRS Berlin position, I think, is a pretty good deal almost everyone agrees with that and a strong commercial momentum across the different service lines continues, especially for HCT, labor and fuel. We're going to 2027, I think I said we are going in with at least the first half, record orderbook, and we're forecasting significant year-on-year growth, and we are also forecasting positive EBITDA for 2027. We will integrate CRS Berlin as it comes up, we will also widen our addressable market for the whole company. The general industry dynamics seems to be improving, as I mentioned, biotech funding is loosening up and the big pharma are busy doing a lot more M&A and we had a Capital Markets Day in July of this year, where we had key venture capitalists, biotech CEOs and also big pharma presidents who presented some of the key advantages of the services we're offering and why it's a good fit for the biotech industry. So thank you very much for your time, and I look forward to the questions.

[Operator Instructions] Mo, as you can see, as usual, a number of questions from investors. Thank you to everybody once again for your engagement on the call this afternoon. If I may just hand back to you, if I could ask you, please to read out the questions where it's appropriate to do so, and I'll pick up from you at the end.

Great. Thank you, [ Mark ]. So yes, I'll go through as many questions as I can within the time allotted. So the first question really is when can we expect to see a pickup in winning HCT contracts again? Without these share price will never really recover from previous highs. So I believe we are already seeing that, right? So we've illustrated we signed our largest ever human challenge trial contract with ILiAD and then we've also signed 2 additional human challenge trials in the meantime. But maybe, Andrew, you can talk about what types of drugs are of particular interest to our customers now.

Yes, we are seeing an upscaling in all the challenge study contracts actually, which is great. So we are seeing certainly more antivirals coming through. So the amount of money that was going into infectious disease is still the same as it was previously. So just instead of being split between vaccines and antivirals, we're seeing more of it going towards antivirals, although there are still some vaccines coming through for testing as well. So though the type of products that are shifting to the antiviral market, still that's a good sign because we're seeing these new products being developed. We're also seeing some antivirals not just for treatment, which is traditional use of antiviral, we're actually seeing a pickup in business where from proposals of customers who are designing antivirals as a preventative for diseases, so alternative to vaccines. These will be targeted against people, for example, who might have immune deficiencies where they wouldn't respond to a vaccine, for example.

Great. Thank you. So the next question is, how will the company be affected by AI? So drug development in general, I don't think will be severely impacted by AI considering we still need to test a molecule in a human body. I don't know what's going to happen in 5 or 10 or 15 years' time. But for now, at least there's no replacement in obtaining data from doing clinical testing in human beings. We are using AI in the sense of some of the process we have across the different departments, so that's already in place. But if the question is, will AI basically stop all types of drug development, I can't see that for the foreseeable future.