Company Overview: Clinuvel Pharmaceuticals Limited (ASX: CUV) is devoted to the development of drugs for the treatment of a broad range of severe skin illnesses. The company aims on research and development programs for patient’s treatment by the interaction of skin with its environments, seeking to provide innovative medical solutions for photoprotection, regimentation, and genetic defects. The company is engaged in developing and commercialising world’s first photoprotective drug, SCENESSE® in the US & Europe for the treatment of phototoxicity in adult patients with EPP.
 

CUV Details

Higher Investments & Expansion of SCENESSE® in the US are Key Growth Catalysts: A global biopharmaceutical company, Clinuvel Pharmaceuticals Limited (ASX: CUV) is engaged in the development of drugs to treat the patients with a wide array of severe skin & genetic ailments. The company’s branded first-in-class photoprotective drug called SCENESSE®, is utilised for the treatment of phototoxicity in adult patients with erythropoietic protoporphyria (EPP).
 
For the six months ended 31^st December 2019, the company reported a growth of 11% in revenue to ~$9.971 million and witnessed an eighth consecutive half year of profit, which came in at $1.059 million. The upside in revenues can primarily be attributed to the company’s approach to supply SCENESSE® to patients in Europe. Further, EPP expert centres in Europe persisted to prescribe SCENESSE® to higher number of new and existing patients for their skin treatment, which is a key catalyst. The company also witnessed a high patient retention rate of around 95% from its European business. The Company has executed a consistent pricing policy in the European Economic Area whereby the price of SCENESSE® remained stable between the two reporting periods.
 
Clinical demand during the period was delightful, indicating the benefits earned out of investment for the development of SCENESSE®. The company is making higher investments to offer a platform to chase its goal to include SCENESSE® as a treatment for skin depigmentation disorder, vitiligo, into the USA and to further progress its product development pipeline. Eventually, the expenses incurred to support these strategic initiatives are likely to result in new sources of revenue for the company in the near future.
 
CUV continues to focus on cost control measures, while investing to support its growth outlook. The company has recently stated its plan to introduce its novel drug SCENESSE®in the US with the first patient to be treated in mid-April 2020. Further, the company’s effort to focus on social and governance programs to lower drug prices remains a key positive area. Higher investments in research & development and innovating product development will help in providing improved patient experience and care.
 
Coming to the past three-years performance over the period covering FY16 to FY19, CUV witnessed a top-line CAGR of ~69.1%. Basic earnings per share stood at 37.6 cents per share, as compared to a loss of 7 cents per share reported in FY16. Profit attributable to shareholders over the same time span witnessed a CAGR of 79.8%, with FY16 and FY19 profit amounting to $3.12 million and $18.13 million, respectively.
 

Sneak Peek at Shareholder Returns (Source: Company Reports)
 
1HFY20 Financial Highlights for the period ended 31 December 2019: During the period, the company reported total revenue amounting to $9.971 million, signifying a rise of 11% from $8.981 million reported in the year-ago period. Net Profit during the period came in at $1.059m, an 8th consecutive half year profit. The company’s commercial sales of SCENESSE®in Europe stood at $7.394 million in 1HFY20, up 5% from $7.066 million from 1HFY19. Reimbursement revenues under the Special Access Schemes for SCENESSE, increased 35% to $2.577 million for 1HFY20. Furthermore, the positive impact of foreign currency exchange rate, as a result of a stronger Euro relative to the Australian dollar was a key positive during the period. The company reported a positive EPS of $0.022 in 1HFY20, with total expenses up 54%, year over year, depicting higher investment in key areas of the business to achieve its growth initiatives. 
 

Revenue Highlight (Source: Company Reports)
 
Balance Sheet & Cash Flow Position: The company has reported a robust balance sheet, that will help in financing its growth with cash and cash equivalents of $57.432 million at the end of 31 December 2019, up from $54.269 million at the end of 30 June 2019. Net assets of the company as at 31 December 2019 came in at $58.027 million, up from $57.18 million as at 30^th June 2019, reflecting the impact of rise in revenue from commercial sales. The company did not raise any capital via equity or debt, representing a robust financial position for investing in future performance. The board of directors of the company declared an unfranked dividend of $0.025 per share, representing an increase of 25%.
 
Operating cash inflow for the year stood at $4.747 million, as compared to operating cash inflow of $7.247 million in 1HFY18. Net cash outflow from investing activities amounted to $0.206 million, and financing activities during the year led to an outflow of $1.35 million.


Cash Flow Statement (Source: Company Reports)
 
Key Updates:
 
(1) On 23 March 2020, the company announced its intention to launch its novel drug SCENESSE® in the USA, with the first patient to be treated post 15 April 2020. The company’s SCENESSE® drug received a nod by the US Food and Drug Administration (FDA) last year for the prevention of phototoxicity in adult patients with erythropoietic protoporphyria (EPP).
 
(2) On 3 March 2020, the company stated that US FDA has given approval to discuss and agree on the North American development program for SCENESSE® for the pigment loss disorder vitiligo, on 29 April 2020.
 
Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 27.18% of the total shareholding. ACN 108 768 896 Pty. Ltd. held the maximum number of shares with a percentage holding of 9.16%, followed by Ender 1, L.L.C., with a holding of 5.24%.
 

Top Ten Shareholders (Source: Thomson Reuters)
 
Key Metrics: In 1HFY20, the company had a quick ratio and current ratio of 14.9x and 15.38x, which is higher than the industry median of 4.7x and 4.95x, respectively. The company had negligible debt during the year with a debt-to-equity ratio of 0.01x, as compared to the industry median of 0.18x, demonstrating a better financial position in comparison to peers.
 

Key Metrics (Source: Thomson Reuters)
 
Outlook: Going forward, CUV expects to advance its product pipeline, increase the expansion of the molecules CUV9900 and VLRX001 via formulation advancement, and non-clinical and human testing. The company has expanded its resources and its capabilities to progress these projects ongoing at VALLAURIX. Consequently, the company remains on track to achieve its long- term goal and maintain profitability.
                                                                                                                          
The Company remains on track to execute its expansion plan in the USA, following the approval by the US Food & Drug Administration (FDA) to market SCENESSE for the treatment of adult EPP patients. Going forward, the company anticipates that its European business is likely to generate healthy earnings to finance its growth by boosting skin-related products in the pipeline. This is turn will strengthen its foothold in the European distribution market.
 
The global economy is shaken due to the COVID-19-led disruption. Though, one sector that is witnessing industry-wide growth is the healthcare sector. With increasing awareness about the advantages of expert medical caregiving, the need for healthcare workforce or employees has increased substantially. CUV stands to benefit from its planned methods for considering numerous growth opportunities in a very active healthcare sector.
 
It is worth stating that the company stands to benefit from encouraging trends, which includes new drug approvals, an accelerated pace of innovation, promising drug launches, growing importance of biosimilars, cost-cutting initiatives, an aging population, expanding insurance coverage, the rising middle-class, insatiable demand for new drug, and an ever-increasing health care spending. 
 

Key Valuation Metrics (Source: Thomson Reuters)
 
Valuation Methodology: P/E Market-Multiple Based Valuation (Illustrative) 


P/E Market-Multiple Based Valuation (Source: Thomson Reuters) 

Note: All forecasted figures have been taken from Thomson Reuters
 
Stock Recommendation: The stock of the company generated positive returns of 51.54% in the past one month. Notably, the company witnessed the positive impact of foreign currency exchange rate in 1HFY20, which is a key positive. At CMP of $20.53, the stock of the company is trading at a P/E multiple 65.94x with a dividend yield of 0.12%. The company has a market capitalisation of ~$1.02 billion and ~49.41 million outstanding shares. Currently, the stock is trading below the average of its 52-week high and low of $45.88 and $12.92, respectively, proffering an opportunity for share accumulation. Considering the recent developments with respect to the key product SCENESSE®, strong cash position, and current trading level, we have valued the stock using a 3.5-year average P/E market multiple of ~44.68x to FY20E consensus EPS of ~$0.655 and arrived at an indicative target price of double-digit growth (in % terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $20.53, down 0.533% on 15 April 2020.
 
 
CUV Daily Technical Chart (Source: Thomson Reuters)

Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.