Expansion to sustain growth with boosted capacity
hVIVO is establishing a new facility in the Canary Wharf life sciences hub, London. This will increase its quarantine bed capacity and provide greater flexibility to meet anticipated higher demand for its human challenge clinical trial services. The new site, which management notes is mostly funded by a number of its clients, will include quarantine rooms, laboratory space, outpatient facilities and corporate office space.
hVIVO, which claims to be the world leader in human challenge trials, offers 11+ human challenge models, including for influenza, RSV, HRV, asthma, COPD, COVID-19, hMPV, and malaria. The human challenge approach allows rapid evaluation of the efficacy of vaccines and anti-infective therapeutics in humans in a controlled environment. Early challenge studies aim to reduce the cost and risk of later-stage trials.
The Canary Wharf site will initially have 50 quarantine beds with capacity to increase to 70. There will be an outpatient unit for phase II and III field trials. The new facility should allow hVIVO to meet management's anticipation of rising demand for challenge trials given the strong order book. The planned facility also has virology and immunology laboratories to increase the throughput of test samples. The efficiencies of running and testing several challenge trials on the same ward on a rolling basis should improve logistics and could increase revenue by enabling more contracted trials per year.
hVIVO’s current Whitechapel and Queen Mary sites with 43 beds will continue to operate during the transition to Canary Wharf. Management expects the transition to be completed by the end of Q1 2024. The Plumbers Row and Manchester FluCamp screening facilities and outpatient unit will continue in use.
New, larger Canary Wharf facility
hVIVO has previously announced H1 results showing a 52% year-on-year revenue increase to £27.3mln. This is a trend driven by the growth of the weighted challenge trial order book (at 30 June 2023 around £78mln, up 11% on June 2022). These orders are converted to revenues over 2-3 years as trials are completed. H1 EBITDA margin improved to around 19%.
Following the payment of a £3mln dividend to shareholders in June, the company’s cash at H1-end was £31.3mln. This strong cash position reflects the part-prepayment model for the challenge trial contracts. The prepayment model and 2-3-year order book enable hVIVO to optimise its trials and invest for growth.
hVIVO continues to invest in its human challenge trial models and infrastructure. It has delivered consistent growth through a diversified portfolio of challenge models with other laboratory and clinical services. hVIVO notes that it has completed over 70 human challenge trials involving over 4,000 volunteers.
hVIVO states that it is fully contracted to meet its FY2023 revenue guidance of £53mln. Management expects an EBITDA of between 15% and 19% (excluding £2mln in R&D tax credit and other income).
Financial updates
Year end Dec 31 · 2019 · 2020 · 2021 · 2022
Revenue £M · 3.5 · 22.2 · 39.0 · 50.7
EBITDA (£M) · (3.8) · (6.1) · 2.9 · 9.1
hVIVO has seen rising demand from its clients and the market at large for more human challenge trials and at a larger scale. Management notes that increasing demand has led to a proportion of the costs of the new facility being covered by hVIVO clients. Furthermore, the consolidation of beds and facilities into a single site on one floor should allow for greater efficiency of operation and organisation. The cost-per-bed ratio is expected to stay around the same.
The expanded laboratory facilities will allow a greater throughput of samples, which is essential as the challenge trial business grows. It will also facilitate the expansion of the Company’s standalone lab services and enable testing of a broader range of pathogens.
Rising demand
hVIVO announced in July the signing of an important human flu challenge trial worth £13.1mln with a top 5 global pharma client. hVIVO will manufacture the influenza B challenge virus to GMP standard and conduct a characterisation study. Healthy volunteers will be recruited through its FluCamp platform. The company expects this study to commence in Q4 2023. The goal is to establish a safe and reproducible challenge dose of influenza B. If this study is successful, subject to regulatory approval, the client may commission an influenza B challenge trial in H1 2024. Revenues will be realised through calendar 2023-2024.
This is the second bespoke challenge model delivered by hVIVO this year. A hMPV (human metapneumovirus, a respiratory infection) end-to-end human challenge service contract was signed in June. These contract wins show the value of the company's capabilities as these challenge model developments are effectively funded by clients rather than hVIVO.
Flu B challenge model
hVIVO's H1 results, in July, showed growth in its order book to a weighted £78mln. Under the prepayment model, this has helped cash to grow to £31.3mln. The reliable revenue order book, expanded lab and bed facilities, and strong cash position should allow hVIVO to grow its range of challenge models and add new services. This gives a solid basis for future growth.
Strong position for growth
Exhibit 1 - Challenge model development portfolio.
Source: hVIVO Investor Presentation