hVIVO (LSE: HVO) was a 10p penny stock a few weeks ago. Now, after a surge to 21p per share, its a £136m capitalised small-cap stock.
That’s what can happen with penny stocks. They have the potential to head north pretty dramatically.
Conversely, they can also blow up (in a bad way). A 5p stock might look enticing to me as I fantasise about it shooting above 50p or even a quid. Then it heads down to 1p in a matter of weeks and I’m left looking at a bright red dud every time I check my portfolio.
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Anyway, with hVIVO stock doubling since Christmas, I’m left wondering whether I should add to my position.
What does the company do?
As a reminder, the firm is a specialist contract research organisation (CRO). It is a world leader in testing infectious and respiratory disease vaccines and therapeutics using human challenge trials.
These involve exposing healthy volunteers to the pathogen a treatment is being trialled to protect against. The company designs then runs these clinical studies at its dedicated facility in Whitechapel in London.
The company works with some of the world’s largest biopharmaceuticals, and it has been winning larger contracts recently. Its latest £6.8m deal announced this month was with a pharma client based in Asia-Pacific to test its respiratory syncytial virus (RSV) antiviral drug candidate.
This will involve hVIVO conducting a Phase 2a double-blinded human challenge trial at its quarantine facilities to evaluate the efficacy profile of the antiviral against RSV. The study is expected to commence in H1 2024, with revenue mostly received then.
This adds to the firm’s growing order book, which had already reached £76m by the end of December. And this was the second human challenge trial that the company has signed with an Asia-Pacific client in 2023. Management expects more such deals to follow.
Why human challenge trials?
Human challenge studies are proving incredibly valuable to biopharma companies. They offer a faster and cheaper way of accessing reliable data that tells them whether their vaccine and antiviral candidates have genuine potential.
This makes it easier to decide to move (or not) the potential treatments to larger studies. These trials therefore rapidly advance the drug development pathway.
hVIVO — formerly know as Open Orphan — has been specialising in this area for over 30 years. It has already inoculated some 1,600 volunteers across 28 RSV challenge trials. Overall, it has inoculated over 3,750 volunteers over more than 70 such studies.
Will I add to the stock?
In light of this recent business momentum, management has announced that the company will reward shareholders with a dividend. So this means the company is producing earnings to afford this proposed payout.
And now the company is profitable, I can actually assign it a price-to-earnings (P/E) ratio. The current P/E is around 27. I don’t think that’s too bad, considering the stock has doubled in a matter of weeks. But it also isn’t cheap, so the share price could pull back in the short term.
I added to my position last month, after first buying the stock at the beginning of December. Both buys are up so far. So I’m happy to keep holding my shares for now.
