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’s branded first-in-class photoprotective drug called SCENESSE®, is utilised for the treatment of phototoxicity in adult patients with erythropoietic protoporphyria (EPP).

CUV Details

CUV Rides on Decent Liquidity Position & Strong Adoption of SCENESSE® Product: 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. Recently, the company released a strategic update on its expansion and growth. CUV has achieved training and acceleration of 40 American Specialty Centers to distribute SCENESSE® (afamelanotide 16mg) to EPP patients. Further, the company remains on track to expand therapeutic potential of melanocortins and, SCENESSE® in numerous genetic, metabolic, and life-warning disorders. This depicts that the company has built a sustainable business, thereby generating positive cashflow and profit, along with decent liquidity position and cash reserves.

In March-quarter of fiscal 2021, cash receipts stood at A$6.524 million. On a year-to-date basis (9 months to March 2021), cash receipts increased 26% year over year and came in at A$23.805 million. The rise in cash receipt was primarily due to the higher distribution of SCENESSE® in Europe and the USA for adult patients suffering from EPP. Net cash flow (after operating expenditures) remained decent and came in at $1.986 million during the quarter. Also, the quarter was marked with higher European orders for SCENESSE® products, due to the impact of COVID-19 outbreak. The company remains on track to manage expenditures and implement cost-cutting initiatives to support the growth of the business.

Cash Receipts & OpEx Highlights (Source: Company Reports)

Key Developments: During the March quarter, the company remained on track to progress well on its commercial operations in Europe and the USA and also maintained increased focus on the augmentation of research and development pursuits. During the quarter, the company was granted market access in Israel, with the approval of SCENESSE® by the Israeli Ministry of Health as a first-line treatment for restraining the impact of phototoxicity in adult patients detected with EPP. This marks a key milestone for the company and set it on a pathway of similar authorisations in other countries in the Middle East. During the quarter, the company’s Chairman, Willem Blijdorp stated that CUV will set up a distinctive Manufacturing Division in order to focus on manufacturing novel formulations and products. The move will aid the company to offer R&D and production to other numerous companies and research groups within the biopharmaceutical sector.

Sneak Peek at 1HFY21’s Key Results: For the period ended 31 December 2020, the company reported a growth of 57.9% in revenue to ~$15.7 million, primary on the back of increase in sales from commercial operations in European economic area, which, in turn, resulted a rise in commercials by 84.4% year over year. The company reported a net profit after tax of ~$6.49 million, a tenth consecutive half year net profit. This marked an increase of ~962.3% in profit after tax on a year over year basis in 1HFY21. 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.

Key Metrics, Balance Sheet & Decent Liquidity Position: The company has reported a robust balance sheet, that will help in financing its growth with cash and cash equivalents of $72.92 million at the end of 31 December 2020, up from $66.74 million at the end of 30 June 2020. Net assets of the company at the end of the period came in at $78.085 million, up from $72.067 million as at 30^th June 2020. Operating cash inflow for the period stood at $9.19 million, as compared to operating cash inflow of $4.75 million reported in the year-ago period.

In 1HFY21, EBITDA margin and net margin of the company stood at 39.8% and 40.6%, higher than the industry median figure of -31.9% and -52.9%, respectively. The company had negligible debt during the period with a debt-to-equity ratio of 0.02x.

Profitability and Liquidity Profile; Analysis by Kalkine Group 

Top 10 Shareholders: The top 10 shareholders together form around 24.63% of the total shareholdings, while the top 4 constitutes the maximum holding. ACN 108 768 896 Pty. Ltd. and Ender 1, L.L.C. are holding a maximum stake in the company at 5.93% and 5.24%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Key Risks: The company is exposed to supply risk as the manufacturing unit may not produce product in batches that should meet the minimum level set. Further, clinical trials may not yield the planned results. Also, stringent regulatory approval, stiff competition from peers and the uncertainties led by the virus outbreak add to the woes. Notably, unfavourable foreign-exchange movements and increase in research and development expenses may also weigh on financial results of the company, going forward.

Outlook: The company has a robust pipeline with enhanced focus on novel treatments for patients with severe genetic and vascular disorders who lack therapeutic alternatives. Going forward, the company anticipates that its European business is likely to generate decent earnings to finance its growth by boosting skin-related products in the pipeline. This is, in turn, will strengthen its foothold in the European distribution market. The company has been investing in new technology and service enhancement. In addition, with a robust research and development (R&D) pipeline, commercial and operations excellence, global reputation as a leading biotechnology company, CUV remains well-placed for long-term growth.

Valuation Methodology: Price/Sales Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of the company has corrected by ~4.5% in the past one month. Currently, the stock has a 52-week’s high and low levels of $31.235 and $19.53, respectively. We have valued the stock using a Price/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount as compared to its peer average, considering increased costs and expenditure associated with commercialising SCENESSE®, foreign currency Risk and strict regulatory approval, etc. For this purpose, we have taken peers Starpharma Holdings Ltd (ASX: SPL), Telix Pharmaceuticals Ltd (ASX: TLX), to name a few. Considering the recent developments with respect to the key product SCENESSE®, healthy balance sheet, decent long-term outlook, increase in top-line, and geographical diversification, we recommend a ‘Buy’ rating on the stock at the current market price of $27.43, down by ~1.260% as on 23 June 2021.

CUV Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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