The Motley Fool

The Open Orphan (ORPH) share price is surging. Should I buy now?

Image source: Getty Images

The Open Orphan (LSE:ORPH) share price has been on fire over the last 12 months. Since April 2020, the clinical research organisation (CRO) has seen its stock price jump by more than 600%. But what’s causing this growth? Can it continue rising? And should I be adding the company to my portfolio?

The rising share price

To be clear Open Orphan is not a drug developer. It actually, provides services to large pharmaceutical companies like Pfizer and Johnson & Johnson to assist in the execution of clinical trials.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

The firm specialises in vaccine and anti-viral testing. This has been in rather high demand recently due to the pandemic. So it’s not surprising that Open Orphan was the first to run Covid-19 human challenge trials under a £46m contract with the UK Government last October.

What’s more, the management team believes that governments and pharmaceutical companies are now investing considerably more capital into vaccine development programmes in order to be better prepared when the next global pandemic hits in the future.

Consequently, the vaccine development market is expanding considerably. And needless to say, this provides many more opportunities for the business and the ORPH share price to grow. Even more so now that it has launched its Disease In Motion platform. This new project allows its clients to access a vast database of clinical, immunological, virological, and digital biomarkers that can significantly accelerate various steps in the drug development process.

Some risks to consider

I’ve previously discussed the highly regulated nature of the pharmaceuticals industry. And while Open Orphan is not directly developing any drugs of its own, it is still subject to the same regulations surrounding clinical testing. These rules create complexities and high expenses. But they also protect patients’ health and safety.

While I believe it’s unlikely, if the firm fails to meet the regulatory standards, there would be severe legal consequences as well as reputational damage. So much so that I doubt its clients would continue using its services, especially when there are a vast number of alternative CROs.

The company performed admirably in 2020 and even reached profitability in the last quarter. But based on the current revenue forecasts of £29m for the year, the ORPH share price looks a bit expensive to me. By comparison, the firm’s current market capitalisation sits at around £290m. Thus placing its price-to-sales ratio at a relatively high value of 10.

The Open Orphan (ORPH) share price has its risks

The bottom line

The sudden surge in the ORPH share price appears to be strongly linked to shareholder expectations rather than fundamentals. Experience has taught me that this often leads to short-term volatility and a higher level of risk.

However, over the long term, Open Orphan looks to me like a business whose services should never fall out of fashion. Also, I believe its Disease In Motion platform grants it some significant competitive advantages versus other CROs. Therefore, while risky, this is a growth stock I would consider adding to my portfolio.

But I've also spotted another business that looks like its also about to explode...

One stock for a post-Covid world...

Covid-19 is ripping the investment world in two…

Some companies have seen exploding cash-flows, soaring valuations and record results…

…Others are scrimping and suffering.

Entire industries look to be going extinct.

Such world-changing events may only happen once in a lifetime.

And it seems there’s no middle ground.

Financially, you’ll want to learn how to get positioned on the winning side.

That’s why our expert analysts have put together this special report.

If the pandemic has completely changed our lives forever, then they believe that this stock, hidden inside the tech-heavy NASDAQ, could be set for monstrous gains...

Click here to claim your copy now — and we’ll tell you the name of this US stock… free of charge!

Zaven Boyrazian does not own shares in Open Orphan. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.