Is it too late to buy Open Orphan shares?

Six months ago, Open Orphan’s (LSE: ORPH) shares hit a low of 13.5p. Fast-forward to February 19^th, 2021, the shares hit a high of 32.90p. Could the rapid share price acceleration be attributable to Open Orphan’s knack of winning new contracts?

On March 9^th, Open Orphan further grabbed my attention (and I thought of the company as a possible contender for my SIPP) when its subsidiary Venn Life Science secured a contract with Oxford BioTherapeutics in order to advance a breast cancer trial study.  

Open Orphan seemed to be a on a roll in winning new business and, for diversification purposes, adding some pharma to my portfolio would be beneficial in the long term.

The firm said the contract was for a phase 1, open-label dose finding study, which would assess the safety, tolerability, pharmacokinetics and preliminary efficacy of ‘OBT076’, a CD205-directed antibody-drug conjugate, in recurrent and metastatic CD205-positive solid tumours and in women with CD205-positive HER2-negative metastatic breast cancer.

The breast cancer trial, if successful, could play a role in beating the fourth most common cause of cancer death in the UK, according to charity Cancer Research.

Open Orphan’s executive chairman Cathal Friel said: “This deal further demonstrates Open Orphan’s ability to execute on its significant pipeline of contracts with important pharmaceutical businesses.”

Expanding market

Over the past six months, the market for vaccine development and testing has grown rapidly, largely due to the outbreak of Covid-19. There is no doubt that this factor has benefited Open Orphan’s shares, and perhaps one of the reasons why the AIM-traded firm’s market capitalisation is growing – currently standing at £192m.

Open Orphan believes that governments and international pharmaceutical companies are making ‘catch-up’ investments in all types of vaccine development to ensure the effects of any global pandemic can be mitigated in the future. This will have a knock-on effect for Open Orphan’s hVIVO facility, the firm’s other commercial specialist service business.

Winning new contracts, an expanding vaccine development market and world class facilities – Open Orphan has Europe’s only 24-bedroom quarantine clinic with onsite virology – all make Open Orphan’s shares an attractive buy for me.

But what are the negatives? There are a few.

The pandemic has created a new type of “gold rush” in Covid-19 pharmaceutical and biotech shares, which might inevitably come to an end. Open Orphan shares could be the victim of hype and over-valuation, and there is a possible danger of buying this share at the top.

Back in October 2020, Open Orphan’s own brokers downplayed the prospects for the company’s share price despite securing a £10m Covid-19 challenge contract with the government. Arden Partners issued a buy rating on the stock with a target price of 32p, and joint broker finnCap also appeared to be backing a conservative outlook indicating a target price of 28p, with the shares trading around 29p today.