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 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

Commercialisation & Higher Investments Remains Key Catalysts: Clinuvel Pharmaceuticals Limited (ASX: CUV) is a global biopharmaceutical company, which is involved in the enhancement of drugs to cure the patients with a broad range of serious skin & genetic diseases. The company’s branded first-in-class photoprotective drug called SCENESSE®, is used for the treatment of phototoxicity in adult patients with erythropoietic protoporphyria (EPP). The company remains focused on the advancement and commercialisation of its flagship drug, with new technology to meet the ever-increasing medical need. The company stands to gain from the commercialisation of SCENESSE® (afamelanotide 16mg), which has been approved and introduced for the treatment of EPP in adult patients in Europe and the USA.

The company has clinically grown its business to generate enough cash and funds required for its expansion. Notably, the company recorded its fourth consecutive year of positive cash flow and profit in FY20. Further, the company also remains on track to enhance the value of its shareholders by declaring a continuous dividend to them. FY20, depicted the group’s third consecutive final dividend. The company is also well equipped to diversify its business during the COVID-19 led pandemic and economic contraction via its ongoing commercialisation and development of SCENESSE®. The company is well-positioned to expand its activities on a global basis, by targeting new medical indications, and deliver new products.

The company has also strengthened its balance sheet by accumulating net cash from operations since its commercial launch. As at 30 June 2020, the company’s cash reserves were 82% of assets with negligible debt. This robust cash position enables the company to progress the distribution of SCENESSE® in Europe and the USA and other jurisdictions to leverage the growth opportunity in the current environment. CUV continues to focus on cost control measures while investing to support its business objectives. The company recently stated that its key product, SCENESSE® has been processed for the first time to a patient detected with xeroderma pigmentosum (XP) under a Special Access Program. CUV expects the first results from the use of SCENESSE® in XP patients in 2021.

SCENESSE® Key Aspects (Source: Company Reports)

In the current global pandemic, clinical demand remains on its high level, suggesting the benefits gained out of investment for the advancement of SCENESSE®. The expenses incurred to support these strategic initiatives are likely to result in new sources of revenue for the company in the near future. Further, the company’s effort to focus on social and governance programs to lower drug prices remains a key positive area. Higher investments in R&D and innovating product development are likely to aid in better patient experience and care.

Looking at the past four years’ performance from FY16 to FY20, the company’s revenues increased at a 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 in FY20 came in at $16.6 million, as compared to a loss of $3.1 million in FY16.

Past Financials Trend (Source: Company Reports)

FY20 Revenues, Profits & Cash Reserves Driven by Commercialisation: The company began its commercial operations in Europe in June 2016. Revenues from operations in FY20 increased by 5% year over year and came in at ~32.6 million. The upside in revenues can primarily be attributed to the company’s approach to supply SCENESSE® to patients in Europe and the USA. During the period, the company’s total expenditure went up 44%, depicting a deliberate and control rise to launch the commercial infrastructure in the USA post the approval of SCENESSE® by the US Food and Drug Administration (FDA). Net profit for the period came in at A$16.6 million, a fourth consecutive year of annual profit. The company has also delivered an increase of 23% in cash reserves. 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 delivering support to its long-term investors.

FY20 Key Highlights (Source: Company Reports)

Healthy Balance Sheet and Decent Liquidity: In FY20, the company had a quick ratio and current ratio of 11.09x and 11.28x, which are higher than the industry median of 3.69x and 5.23x, 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 0.09x, demonstrating a sound financial position. The company’s cash balance at the end of 30 June 2020, stood at $66.75 million, up 23% from the end of the FY19. Net tangibles assets at the end of the period stood at $73.67 million, up from $57.18 million as at 30th June 2019. The company has strengthened its balance sheet after four years of commercial operations, with negligible debt and a cash position, which is sufficient to finance its future expansion. Operating cash inflow for the year came in at $14.19 million. The Board of Directors declared an unfranked dividend of $0.025 per share in FY20. The company remains on track to continue investing in core areas considering its strong cash flow.

Key Metrics (Source: Refinitiv, Thomson Reuters)

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 28.38% 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 10 Shareholders (Source: Refinitiv, Thomson Reuters)

Risk Analysis: The company’s financial instruments comprise mainly of receivables, payables, bank loans and overdrafts, finance leases, loans from related parties, cash, and short-term deposits. The main risks of CUV are exposed to through its financial instruments are foreign currency risk, interest rate risk, liquidity risk and credit risk.  The company is also exposed to material business, which includes technology, supply, and drug pricing, which may adversely impact the achievement of the business goals of the company.

Future Expectations: Although, the worldwide economy is taken a set back from the COVID-19-led disruption, but one sector that is witnessing industry-wide growth is the healthcare sector. The need for healthcare workforce or employees has increased substantially, given the advantages of expert medical caregiving. CUV stands to benefit from its planned methods for considering numerous growth opportunities in a very active healthcare sector. The company plans to make higher investments to deliver high quality products to its clients with exceptional customer service. CUV continues to focus on cost control measures, while investing to support its growth. The company is also taking necessary measures to grow commercially in the short term, improve operational efficacy, thereby striving to be one of the leading biopharmaceutical companies. Eventually, these strategic initiatives are likely to result in new sources of revenue for the company in near future. 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’s European business is expected to generate healthy earnings to finance its growth by boosting skin-related products in the pipeline.

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: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters

Stock Recommendation: The stock of the company generated positive returns of 5.6% in the past six months. At CMP of $22.4, the stock of the company is trading at a P/E multiple 72.2x with an annual dividend yield of 0.11%. The company has a market capitalisation of ~$1.11 billion and ~49.41 million outstanding shares. Currently, the stock is trading below the average of its 52-weeks' high and low of $33.95 and $12.92, respectively, proffering an opportunity for share accumulation. On a technical analysis front, the stock has a support level of ~$19.727 and an immediate resistance level of ~$24.515. We have valued the stock based on 3-year average Price/Sales market multiple of ~30.98x to FY21E consensus sales of $45.15 Mn and arrived at an indicative target price of low double-digit growth (in % terms). Hence, considering the recent developments with respect to the key product SCENESSE®, healthy balance sheet, and current trading levels, we recommend a “Buy” rating on the stock at the current market price of $22.40, down 0.885% on 21 October 2020.

CUV Daily Technical Chart (Source: Refinitiv, 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.