SMALL CAP IDEA: 'Flu Camp' rapid drug trial firm slashes big pharma costs

Few companies can claim to be world leaders in their niche, but hVIVO comfortably falls into that category. 

The business, which specialises in human challenge trials, has carved out a significant position in drug development in an area gaining traction with big pharmaceutical firms.

Instead of traditional clinical field trials, which often take years and require thousands of participants, hVIVO’s approach exposes volunteers to a controlled dose of a virus in a quarantined setting to test the effectiveness of vaccines and treatments. 

The result is faster, more cost-efficient trials that provide drug makers with a clear picture of efficacy before moving to larger later-stage studies.

The London-listed firm has spent two decades refining its capabilities, running challenge trials for flu, RSV (respiratory syncytial virus), malaria, and Covid-19. As the biopharmaceutical industry looks to accelerate drug development and cut costs, hVIVO is seeing growing demand for its services.

The UK’s regulatory environment is particularly supportive, with the Medicines and Healthcare products Regulatory Agency (MHRA) providing clear guidelines for running these studies. hVIVO, with its purpose-built quarantine facilities and deep expertise, is well-positioned to capitalise on this trend.

In a flurry of early-year activity, the group has expanded its services beyond its core offering, strengthened by recent acquisitions of clinical research units in Germany and storage solutions business, Cryostore.

These deals have added scale, diversified revenues, and positioned the company as a more comprehensive early-stage contract research organisation. Such attributes could, in time, attract interest from a larger, acquisitive industry peer, say analysts at Shore Capital.

There is also potential for expansion into new areas. While hVIVO has traditionally focused on infectious and respiratory diseases, challenge trials could be applied to broader therapeutic areas, including metabolic diseases and dermatology. If the company leverages its expertise beyond respiratory viruses, the market opportunity could be far larger than anticipated.

One of hVIVO’s standout strengths is its substantial order book. Moving into 2025, it had secured £67 million in contracted revenue, covering a significant portion of its forecasted income. This visibility is a key attraction for investors, as it de-risks the business and provides confidence in its growth trajectory.

It exited 2024 in rude financial health, with revenue up almost 12 per cent at £62.7million and an EBITDA margin of 26 per cent, an increase of 2.7 percentage points. The balance sheet is rock solid, with £44.2 million of cash as of 31 December.

Shore Capital, which covers hVIVO, sees plenty of upside. The broker notes that the company’s cash generation, revenue visibility, and profitability make it an outlier in healthcare, where many firms rely on dilutive fundraises to survive.

ShoreCap has a ‘buy’ recommendation, citing the company’s strong fundamentals and dominant market position. It has set a price target of 35p, implying significant upside from the current share price.

For investors seeking life sciences exposure without the binary risks of drug development, hVIVO presents an intriguing opportunity.

Operating in a growing, highly specialised field, with a strong balance sheet and major pharma clients, this is a stock that warrants attention.

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