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 at 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 the world’s first photoprotective drug, SCENESSE® in the US & Europe for the treatment of phototoxicity in adult patients with EPP.

CUV Details

Robust Adoption of SCENESSE® & Higher Investments Aids CUV: 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).

In the month of April 2020, the company commenced the distribution of SCENESSE® in the USA. The company continued the expansion of its SCENESSE® supply in Europe. In the month of August, the company also started its advanced centralised Research & Development Centre in Singapore. The new facility will accelerate the research and development ability of the VALLAURIX team. The company remains on track to focus on pioneering regions of medicine with VALLAURIX developing drugs and over-the-counter (OTC) consumer products.

Clinical demand remains robust, 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, in the USA and Singapore, 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.

For the period ended 30 June 2020, the company reported a growth of 5% in revenue to ~$32.6 million. The company has also delivered an increase of 23% in cash reserves and reported a net profit before tax result of A$13.136 million, a fourth consecutive year of annual profit. The upside in revenues can primarily be attributed to the company’s approach to supply SCENESSE® to patients in Europe and the USA. Further, EPP expert centres in Europe persisted to prescribe SCENESSE® to a higher number of new and existing patients for their skin treatment, which is a key catalyst. The company has declared an unfranked dividend of A$0.025 per share, thereby providing support to its long-term investors.

Coming to the past performance over the period covering FY16 to FY20, CUV witnessed a top-line CAGR of ~50.1%. Basic earnings per share stood at 33.8 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 increased from a loss of $3.1 million in FY16 to $16.6 million reported in FY20.

Revenues & Expenses (Source: Company Reports)

CUV continues to focus on cost control measures while investing to support its growth outlook. In doing so, the company has delivered its key goal to commercialise SCENESSE® in Europe and USA for adult patients with erythropoietic protoporphyria (EPP). CUV has also recently informed the market that SCENESSE® has been processed for the first time to a patient identified with XP under a Special Access Program. As per the diagnosis, the patient’s safety will be assessed over a period of six weeks of treatment. CUV expects the first results from the use of SCENESSE® in XP patients in 2021. 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.

FY20 Financial Highlights for the period ended 30 June 2020: During the period, the company reported total revenue amounting to $32.56 million, signifying a rise of 5% from $31,048 million reported in the year-ago period. Net Profit after tax during the period came in at $16.6 million, an 4th consecutive annual profit. Total revenue grew by 4% in Europe. Although the company’s commercial sales of SCENESSE® in Europe decreased 7.9%, however, reimbursement revenues under the Special Access Schemes for SCENESSE®, increased by 29.9% in FY20. 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 33.8 cents in FY20, with total expenses up 44%, year over year, depicting higher investment in key areas of the business to achieve its growth initiatives.

FY20 Key Financial Highlights (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 $66.75 million at the end of 30 June 2020, up from $54.267 million at the end of 30 June 2019. Net tangibles assets of the company as at 30 June 2020 came in at $73.67 million, up from $57.18 million as at 30th June 2019. 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 in FY20.  Notably, During the quarter ended 30th June 2020, the company reported cash receipts of $10,403,000, which are related to the supply of SCENESSE® to erythropoietic protoporphyria.

Operating cash inflow for the year stood at $14.19 million, as compared to operating cash inflow of $18.56 million in FY19. Net cash outflow from investing activities amounted to $0.889 million, owing to the higher expenditure of the VALLAURIX laboratories in Singapore, which was finalised in the current quarter.

Balance Sheet Highlights (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 29.42% 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: Refinitiv, Thomson Reuters)

Key Metrics: In FY20, the company had a quick ratio and current ratio of 11.09x and 11.28x, which is higher than the industry median of 3.69x and 3.78x, respectively. The company had negligible debt during the year with a debt-to-equity ratio of 0.02x, as compared to the industry median of 0.12x, demonstrating a better financial position in comparison to peers.

Key Metrics (Source: Refinitiv, Thomson Reuters)

Key Risks: The company is sensitive to material business, which includes technology, supply, and drug pricing. These business risks may affect the achievement of the business goals of the company. The company is also exposed to market risk, which arises from the change in interest rates and foreign exchange rates. This can affect the earnings, cash flows and carrying values of its financial statements.

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. 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, in 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: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Sales Based Market-Multiple Valuation Method (Illustrative)

Price to Sales Based Market-Multiple Valuation Method (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of the company generated positive returns of 27.84% in the past six months. At CMP of $23.390, the stock of the company is trading at a P/E multiple 72.13x with a dividend yield of 0.1%. The company has a market capitalisation of ~$1.2 billion and ~49.41 million outstanding shares. Currently, the stock is trading below the average of its 52-weeks' high and low of $45.88 and $12.92, respectively, proffering an opportunity for share accumulation. On a technical analysis front, the stock has a support level of ~$21.577 and a resistance level of ~$27.649. Considering the recent developments with respect to the key product SCENESSE®, strong cash position, and current trading levels, we have valued the stock based on 3-year average Price/Sales market multiple of ~31.23x to FY21E consensus sales of $42.30 Mn and arrived at an indicative target price of lower double-digit growth (in % terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $23.31, down 4.389% on 30 September 2020.

CUV Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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