The ethical debates surrounding in vivo testing of experimental drugs and treatments in humans are one of the most heated moral debates in the pharmaceutical sector. But ultimately all new drugs have to at some stage pass though in vivo human testing.
For science fiction and horror writers, the ‘human experimentation’ trope has been fertile ground for graphic novels, television and the cinema, heightened by a handful of in vivo tests that went wrong and the atrocities of the Nazi and Imperial Japanese regimes in WWII.
However, in the real world, an experimental drug has a long and extensive path to take before it even gets to human in vivo testing, with the costs and time commitment needed often leading to small biotech companies never getting their therapy out of the lab and off a petri dish.
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A small pharmaceutical company first must launch its treatment out of the laboratory’s ‘Discovery’ phase and test its product in silico, or on a computer modelling system to ascertain whether the treatment will react with a vast array of chemical and biological compounds and prove ‘The Discovery’ will respond to the specific molecule it is targeting.
Clinical trials can take up to seven years
If the laboratory team can prove this, the treatment enters clinical trials where its compounds are tested in vitro on a petri dish and in vivo on a non-human test subjects to ensure that the treatment is not toxic. Clinical trials can take up to seven years and it is only after the laboratory team can prove the efficacy and non-toxic nature of the experimental drug – and after lots of to-and-fro-ing with regulators, the primary one being the US’ Food and Drug Administration (FDA) – that the sponsor can even start to consider in vivo human trials as part of the Clinical Development process.
Once the relevant paperwork has been secured, the candidate drug must go through Phase One testing, which is often conducted on a 20-to-80-person cohort of volunteers who are heavily monitored to establish that the clinical safety and non-toxicity proved in the Clinical Trial phase holds true in humans. Safety and toxicity are the primary concerns in Phase One and conducting this process can take a year.
If the candidate drug passes Phase One with no issues, the team can move onto Phase Two where it hopes to prove to the regulator that its treatment actually works, and does what it says on the tin, which is to treat the disease that it was established to treat, whether that be influenza or renal failure.
Phase Two inducts a much larger cohort into the Clinical Development of around 100 to 300 volunteers who either have the disease already, or are infected with it. Again, the volunteers are kept under close observation and the research team investigates minimum and maximum dosages. This part of the process can take another two years.
The final part of the Clinical Development stage is Phase Three. After testing minimum and maximum dosages and proving safety, the research team recruits another 1,000 volunteers to finally prove that the drug is safe and is effective.
A small handful of in vivo Phase Two human Clinical Development test providers
The last part of the process is a mass data-gathering operation that can take up to four years to complete. Volunteers are exposed to the candidate drug for longer periods to assess any side effects. If (after on average a decade) the drug passes all its tests, it is cleared by the regulator for use generally – which is why biotech is such a costly and time-consuming business. The turnaround in the Covid vaccines was something of an anomaly in the clinical research process driven by the global demand for solutions.
It is at Phase Two that AIM-listed, hVivo [LON:HVO], a clinical contract research organisation comes into the picture. The London-based clinical development firm is the leader in testing infectious and respiratory disease vaccines through using in vivo “human challenge clinical trials”, as the company markets its services. It is one of a small handful of in vivo Phase Two human Clinical Development test providers globally, and dominates the market.
Operating out of its new state-of-the art clinical facility in Canary Wharf, as well as other facilities nationally, hVivo offers residential quarantine facilities for volunteers in Clinical Development programmes sponsored by large global pharmaceutical companies undertaking Phase Two clinical evaluations of experimental drugs and therapies.
hVivo has post-war heritage
The company has heritage – it can trace its origins back to a 1946 UK government initiative, the Common Cold Unit in Salisbury, Wiltshire, which operated until 1989 and was superseded by private sector research business, Retroscreen which started conducting human in vivo trials on influenza in 2001 and listed on AIM in 2012. After a number of acquisitions, the company rebranded to hVivo in 2015.
Today the company is pulling in revenues of GBP27.3m (for 1H23) and is expecting to generate GBP55m of revenues this year. EBITA increased year-on-year from GBP2.3m to GBP5.2m with an EBITDA margin of 19.1%, an increase of more than six percentage points from the prior-year period. Core profit more than doubled to GBP5.2m in the first half of the year, compared with GBP2.3m a year earlier. The company has done well enough in the past year to start paying its investors a nominal dividend.
“The key thing is to look at the demand [for clinical trials],” Yamin Khan, hVivo’s CEO told The Armchair Trader, “[…] we’ve just been given 90% of the funding to build a new facility [at Canary Wharf, by its pharmaceutical clients…] and we’re now running [clinical] trials [for our pharmaceutical clients] at full-value price; we’re not discounting any more.”
Khan is correct in the assumption that the demand for Phase Two trials has driven hVivo’s growth. The Coronavirus pandemic was something of a watershed moment for the company, as the entire pharmaceutical industry deployed its considerable might and capital in the rush to develop a mass vaccine.
hVivo specialises in infectious respiratory diseases
hVivo specialises in infectious respiratory diseases, of which influenza and Covid-SARS are two variations, but also looks at other respiratory diseases like asthma as well as non-respiratory diseases like malaria. Khan said: “For sure [the] Covid [pandemic] helped hVivo, as it raised the [public] awareness of viruses, vaccines and retro-virals […] but this year we have a order book of GBP78m and of that GBP0 is Covid-related.”The company has been quite canny and surfed the Covid wave, using it to expand into other areas of Phase Two testing in the respiratory infectious disease field, and this has led to it being able to finance the construction of its new state-of-the-art human in vivo testing facility in Canary Wharf with its clients paying 90% of the cost up-front. Moreover, once the Phase Two Clinical Development trial has been conducted on behalf of its pharmaceutical client, hVivo gets to keep the results in its database, in effect big pharma gives hVivo its intellectual property for free.
The share price hasn’t done that badly either. hVivio closed trading on 10th October at 19.4p. Over the year-to-date, the shares have appreciated by 70.2% and over one-year have grown by 102% with company’s market cap now GBP133.4m.
Khan said: “When I joined hVivo, I wasn’t looking for a full-time job, but then getting to know the company and its people I came to the realisation that this was a sleeping giant. The company hasn’t yet reached its potential.”
Funding hVivo’s expansion plans
The City seems to agree with Khan. Edward Thomason, an analyst for Liberum Capital said: “hVivo’s customers are effectively paying a premium to gain early access to challenge studies and this income is being used to fund the bulk of hVivo’s expansion plans […] the shares trade on just 9.3x EV/2023 EBITDA and look materially undervalued, particularly against the recently announced 21x takeout EV/2023 EBITDA multiple for its closest UK peer, Ergomed. We remain buyers with a new target price of 26.6p.”
The applause from the gallery for hVivo was also shared by Darren Milne, an analyst for Investec. Investec have hVivo as a ‘Buy’ and set a target price of 27p, forecasting a total return of 40%. Milne said: “More details were shared on the move to a new state-of-the-art facility in Canary Wharf […] The move increases capacity and should also deliver operational efficiencies. The expanded capacity increases hVivo’s revenue cap from GBP60m at current facilities to GBP90m with the ability to increase this even further should hVivo utilise the option to increase from 50 to 70 beds. hVIivo has the unique ability to leverage client funding and has done so again, with clients expected to fund 90% of the new facility ahead of potential trials.”
Customers paying a premium for products and services
Biotech is a notoriously difficult industry to make money from. If you, as a small company, discover a wonderdrug with global appeal, the sky is the limit. However, the time, difficulty and expense required to get a drug from a laboratory experiment onto the shelves and into hospitals globally is so onerous that a huge majority of hopeful treatments never see the light of day.
Funding for the sector is drying up – despite the Covid effect – and many small biotech and pharmaceutical firms are either going to the wall or merging with their competitors to pool resources to try and champion one drug through the process. Much like mining, there’s a lot of potential in the pharmaceutical business, but very little product, and the industry is dominated by the financial and strategic considerations of giant global companies who can manipulate supply and pricing to their whims.
But that won’t stop researchers trying, just as miners will keep digging to discover gold. Covid has created something of a pharma rush. In the famous gold rushes of the nineteenth and early twentieth centuries in mining, most prospectors headed out into the wilderness full of optimism and expectation that they, among the thousands who had trodden the trail before them, would strike it rich. Most of those that came back – if they ever made it back – were broken and impoverished men.
However, at the head of the prospecting trail was a shack that sold spades and picks. The man running that shack was the guy who made money out of the gold rush. hVivo is that shack at the edge of the wilderness. Customers will keep coming to the company, and paying a premium for the products and services they offer.
Khan said: “To put it simply, I’m running the most expensive hotel in town, and I make money from putting volunteers in bed.”
hVivo is definitely ‘one to watch’ in the coming years.
