Why Open Orphan stock shot up by 15% today

Open orphan could participate in what the chairman describes as “one of the biggest growth opportunities in the history of the pharmaceutical industry”. 

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After the market’s opening bell today, Open Orphan (LSE: ORPH) stock shot up by more than 15%, although it’s eased back a bit since.

The small-cap company operates as a pharmaceutical services business and describes itself as a rapidly growing specialist contract research organisation.”  It’s also building up an orphan drug consulting service to help pharmaceutical companies commercialise their products in Europe. The firm reckons it is a “world leader” in vaccine and antiviral testing using human challenge clinical trials. 

More positive news driving the price

And today’s move in the stock price was driven by a news announcement. The company has signed a human challenge clinical trial contract with a “major” global pharmaceutical company worth just over £8m. The deal involves Open Orphan testing the partner company’s inhaled human rhinovirus (hRV) antiviral product aimed at treating asthma.

This antiviral study should begin during the first half of 2022. And Open Orphan expects most of the revenue from the contract to arrive in 2021 and 2022. 

Executive chairman Cathal Friel said the contract adds to the firm’s “exciting” pipeline of RSV, hRV, influenza, malaria, and asthma challenge study contracts. And he reckons the pandemic has revealed decades of underinvestment in infectious diseases and respiratory products. When the pandemic arrived, he feels the world had very few infectious disease products to deal with it.

However, there’s an opportunity in that situation for companies such as Open Orphan. Friel thinks governments and pharma companies are now investing “hugely” in new infectious and respiratory disease products. He reckons the market will likely grow from the $20bn seen in 2019 to around $250bn by 2025. Friel sees the situation as “one of the biggest growth opportunities in the history of the pharmaceutical industry.” 

Why I’m interested in Open Orphan stock

And he’s bullish for Open Orphan’s prospects. He said the company is set to work with big pharma and biotechs and it can help advance their products with its human challenge trials.

Today’s announcement comes hot on the heels of a string of positive news releases over recent months. And the operational momentum looks set to drive the business back into profit during 2021.

Looking further ahead, City analysts have pencilled in a three-figure percentage advance in earnings for 2022. And with the share price near 23p, the forward-looking earnings multiple is just over 13 when set against those expectations.

As potentially fast-growing companies go, I find the valuation to be attractive. But it’s worth me remembering that the Open Orphan stock price was as high as 45p or so in April. If the business fails to meet earnings estimates, the stock could continue its downwards trend.

I like this one better now than I did earlier in the year when the stock price was higher. However, even now I view the opportunity as speculative. Nevertheless, I’d embrace the risks and dip my toe in the water with a small position in the stock now to see how the growth story develops

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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