Shore Capital hails improved US biotech funding environment for hVIVO

(Sharecast News) - Shares in AIM-listed hVIVO were continuing their recent surge on the back of encouraging signs from the US biotech market, which broker Shore Capital said has created a "much more favourable environment" for the company. "The funding environment for biotech has been at a lull relative to the heights that were enjoyed leading up to and throughout the pandemic," Shore Capital said.

"However, on Wednesday this week, eight separate US biotechs raised cumulative proceeds through follow-on offers totalling c.$3.2bn in aggregate, which we understand to be a one-day record in recent history."

The broker said that, for contract research organisations like hVIVO, the strength of biotech valuations is an important leading indicator for contract wins and future growth.

However, hesitancy around starting new clinical trials has weighed hVIVO's orderbook over the past 18 months - reflective in its share price which has slumped nearly 80% year-to-date before Wednesday.

"With recent cooling of political rhetoric around US drug pricing, easing concerns around potential headwinds to pharma margins (and a reigning in of R&D spend), we see a much more favourable environment for CROs emerging in the year ahead on both fronts - US peers are trading at a much healthier ratings relative to H1," Shore Capital said.

hVIVO shares are now said to be trading broadly in line with other contract research organisations, at 10x EV/EBITDA on FY27 estimates.

"However, we don't believe this is an equity that should be viewed or valued solely on its near-term earnings potential. This is a one-of-a-kind pharmaceutical service provider that has a proven track record of being profitable and cash generative, with a path to returning to this, and ultimately growing into a more well-rounded CRO," Shore Capital said.

The broker has a fair value estimate for the stock of 25p per share, compared with Friday afternoon's price of 5.25p, up 9.4% on the day.