Shares in clinical trials specialist hVIVO (LSE:HVO) crashed spectacularly recently (down 46% on 30 May). As a result, they’re back in penny stock territory.
Now, I’ve had hVIVO on my watchlist for years – and have always been impressed with the company – but never actually bought any shares. Is now the time to do so? Let’s discuss.
A shocking trading update
First, let’s look at what has happened here.
On Friday, hVIVO posted an update and it wasn’t good. For a start, the company announced that it had received notification of a significant human challenge trial (HCT) contract cancellation as well as a postponement and a smaller study cancellation.
The company noted here that these customer decisions were most likely related to the high level of uncertainty in the pharma industry and the depressed biotech financing market. “The current volatility in the pharmaceutical industry, particularly in the US, is impacting the whole Contract Research Organisation (CRO) industry and has led to an increase in cancellation rates, postponement of clinical trials, and delays in approvals for new projects,” wrote management.
Additionally, it said that as a result of these cancellations/postponements, it now only has £47m of revenue contracted for 2025. Before this update, analysts were expecting full-year revenue of around £75m.
It’s worth noting that the company said that it expects to achieve further contract wins during the course of the year. However, it said that should these not materialise, revenue of £47m would result in a mid-single-digit operating loss for the full year.
Some positives
I’ll point out that CEO Dr Yamin Khan was relatively upbeat about the long-term growth story. “We still remain confident in the continued growth of human challenge trials and the overall prospects for hVIVO as we also continue to diversify our revenue streams and build our offering as a full-service CRO,” he said.
Another positive was that the company said that it still has a “strong cash position” and is well funded to execute on its strategy of building a sustainable and diversified business.
Overall however, the update was a bit of a disaster and as result investors dumped the stock in droves.
The bull case versus the bear case
Looking at the stock today, I’m torn between the bull case and bear case.
Taking a bullish view, the long-term story still looks relatively attractive. Over the next decade, pharma companies are still going to require clinical trial services as they develop new drugs and hVIVO with its new facility in Canary Wharf, London is well placed to capitalise.
Meanwhile, the market cap here is now only around £75m. That could turn out to be a steal given that the company had around £44m cash on its books at the end of 2024.
There was also some insider buying yesterday (2 June). This was from the CEO and the CFO.
Taking a bearish view, however, there’s a lot of uncertainty about revenue growth and earnings potential in the years ahead. So, it’s hard to value the stock right now.
I’m also a bit concerned about customer concentration risk. It’s a little worrying that the loss of a few customers is going to see revenue drop significantly.
Should I buy?
Weighing everything up, I’m going to hold off on buying this penny stock for now. At present, there’s just a little too much uncertainty.
