Company Overview: Clinuvel Pharmaceuticals Limited (ASX: CUV) is devoted to developing 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 to treat phototoxicity in adult patients with erythropoietic protoporphyria (EPP).

CUV Details

CUV Rides on Robust Product Adoption & Healthy Balance Sheet: CUV has invested in new technology and service enhancement. Additionally, with a robust commercial and operations excellence, higher European orders for SCENESSE® products and a leading biotechnology company, CUV remains well-placed for long-term growth.

Key Takeaways from June 2021 Quarter Update:

• Increase in Cash Receipts: During the period, the company reported cash receipts of ~$14.92 million, up from ~$6.524 million reported in the prior quarter. 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.
• Increase in Cash Balance: At the end of the quarter, the company reported a cash balance of $82.69 million, up from $74.89 million reported at the end of the previous quarter. The company had a debt-free balance sheet at the end of the said period. Cash reserves increased ~10.4% on a quarter over quarter basis for the June 2021 quarter.
• Rise in Net Cash inflow from Operations: Net cash inflow remained decent during the quarter and came in at $8.102 million, up from $1.986 million reported in the previous quarter.
• Expenditures & Reinvestment: During the period, expenditures from net operating activities stood at $6.885 million, up from $4.679 reported in the March quarter of 2021. The rise in manufacturing and supply costs of raw materials led to an increase in expenditures.
• Geographical Expansion: During the June quarter, the company remained on track to progress well on its commercial operations in Europe, Israel and the USA and also maintained increased focus on the augmentation of research and development pursuits.
• Clinical Trials: During the period, the company made an agreement with clinical and academic experts to continue clinical work with patients suffering from the genetic disorder xeroderma pigmentosum (XP). The company has undertaken three clinical trials (CUV150-152-153) to assess ultraviolet (UV) in XP patients. The company also remains on track to conduct a fourth trial (CUV151), intended to assess DNA repair in healthy volunteers.

CUV is investing higher in its R&D and clinical programs to fortify its position as a diversified pharmaceutical company. The below picture depicts CUV's rising cash receipts from customers. 

Cash Receipts; Analysis by Kalkine Group

Key Findings from 1HFY21 Results: 

• Increase in Revenues: The company reported 1HFY21 revenues of ~$15.74 million, depicting a rise of ~58% on a year over year basis, owing to higher sales from commercial operations in the European economic area.
• Rise in Net Profit After Tax: During the period, the company’s NPAT increased a whopping ~962.3% year over year and came in at ~$6.49 million. This represented CUV’s tenth consecutive half-year net profit.
• Growth in Earnings Per Share: Basic EPS during the period stood at $0.133, depicting an increase of ~956% on pcp.
• Higher Adoption of SCENESSE®: Despite global uncertainty, the company expanded distribution of its key dug SCENESSE® in both the USA and Europe via an efficient business model and cost control measures.

Balance Sheet & Liquidity Position:

• Increase in Cash Balance: The company exited 1HFY21 with a cash balance amounting to $72.92 million, up from $66.74 million reported at the end of 30 June 2020. The company has nil debt at the end of 1HFY21, providing a robust foundation to finance future growth and expansion.
• Rise in Cashflow from Operations: Operating cash inflow in 1HFY21 came in at ~$9.19 million, an improvement from cash inflow of $4.75 million reported in 1HFY20.

Key Metrics: In 1HFY21, the net margin of the company stood at 40.6%, higher than the industry median figure of -52.9%.   EBITDA margin for 1HFY21 stood at 39.8%, as compared to 10.7% in 1HFY20. For 1HFY21, cash cycle days came in at 65.6 days compared to 255.4 days of the industry median.

Profitability and Liquidity Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 22.92% of the total shareholdings, while the top 4 constitute the maximum holding. Ender 1, L.L.C. and ACN 108 768 896 Pty. Ltd. Are holding a maximum stake in the company at 5.34% and 4.45%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis: 

• Forex Headwinds:Any adverse movement in foreign exchange price may impact the financial performance of the company.
• Failure of Clinical Trials: The clinical trial process is designed to assess the safety and efficacy of a medical device before commercialisation. A failure to achieve the desired results may hamper the company’s financial 
• Supply Risks: The company is exposed to supply risk as the manufacturing unit may not produce product in batches that meet the minimum level.

Outlook: CUV remains on track to expand the therapeutic potential of melanocortins and SCENESSE® in numerous genetic, metabolic, and life-warning disorders. Notably, the company remains viable to build a sustainable business, thereby generating positive cash flow and profit, along with a decent liquidity position and cash reserves. The company continued expanding its SCENESSE® supply in Europe, with the highest number of patient treatments witnessed during the spring and summer months. The company expects the clinical demand to remain robust, indicating the benefits earned out of investment for the development of SCENESSE®. Eventually, the expenses incurred to support these strategic initiatives will likely result in new revenue sources for the company in the near future. 

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 been corrected by ~8.5% in the past three months. Currently, the stock has a 52-week high and low level of $31.235 and $19.53, respectively. We have valued the stock using the price to 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 might trade at a slight discount as compared to its peer average, considering its supply chain disruption risk, increased costs, and expenditure with commercialising SCENESSE®, foreign currency risk, and strict regulatory approval, etc. For that purpose, we have considered peers such as Starpharma Holdings Ltd (ASX: SPL), Telix Pharmaceuticals Ltd (ASX: TLX), to name a few. Considering higher demand from its key product SCENESSE®, zero debt as on 30 June 2021, robust 1HFY21 performance, encouraging long-term outlook, geographical diversification, current trading levels, and valuation, we recommend a “Buy” rating on the stock at the current market price of $26.93 as on 4 August 2021, 11:35 AM (GMT+10), Sydney, Eastern Australia.

CUV Daily Technical Chart, Data Source: REFINITIV 

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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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