CLINUVEL PHARMACEUTICALS LTD

CUV Details

FY19 Performance Driven by Key Product SCENESSE®: CLINUVEL PHARMACEUTICALS LTD (ASX: CUV) is an Australia based biopharmaceutical company, devoted to the enhancement of treatments for skin diseases. CLINUVEL’s research and development has led to innovative treatments for patient populations with a clinical need for photoprotection, repigmentation, and genetic defects. The company’s lead compound, SCENESSE®, is used for the prevention of phototoxicity (anaphylactoid reactions and burns) in adult patients with erythropoietic protoporphyria (EPP). Revenue for FY19 stood at ~$31.05 million, representing an increase of ~22% from $25.49 million reported in the prior corresponding period. Growth in revenue was driven by the company’s strategies to supply SCENESSE to EPP Expert Centres across main European countries. During the year, net profit before tax stood at $18.11 million, up from $12.94 million in the prior corresponding period. The company declared a fully franked final dividend of 2 cents per share. During the year, the company recorded positive cashflows that resulted in record profits booked. Clinical demand during the year was pleasing, indicating the benefits earned out of investment for the development of SCENESSE®. During the quarter ended 30^th September 2019, cash receipts amounted to $9.78 million. Overall, cash flows continued to be positive, with cash and cash equivalents of $58.336 Mn.

Looking at the past four-years performance over the period covering FY16 to FY19, the company witnessed a top-line CAGR of ~65.1%. Basic earnings per share increased from a loss of 7 cents per share in FY16 to a positive EPS of 37.6 cents per share in FY19. Over the four years period, profit attributable to shareholders witnessed a CAGR of 79.8%, with FY16 and FY19 profit amounting to $3.12 million and $18.13 million, respectively.

Going forward, the company expects its business in Europe to produce robust earnings. This, in turn, will finance the company’s growth in the form of enhancement of products in the pipeline related to skin-related symptoms and further strengthen its foothold in the European distribution.

Shareholder Returns (Source: Company Reports)

FY19 Performance: During the year ended 30^th June 2019, the company reported total revenue and other income amounting to $32.50 million, representing an increase of 24% on a y-o-y basis. Profit after tax came in at $18.134 million, up from $13.224 million in prior corresponding year. During the period, the company reported an increase of 35.7% in earnings per share, which came in at 37.6 cents.

FY19 Financial Summary (Source: Company Reports)

Factors Impacting Revenues: Top-line was positively impacted by increase in the number of SCENESSE units supplied to patients in Europe, the positive impact of foreign currency exchange rate exchange, coupled with a continued prescription of SCENESSE® by EPP Expert Centres in Europe, for the treatment of existing and new patient.

Decent Balance Sheet Position: Cash and cash equivalents at the end of the period amounted to $54.269 million. During the period, the company declared an unfranked dividend of 25 cents per share. Total dividends paid for FY19 amounted to $0.957 million. Net assets of the company increased from $39.42 million as at 1^st July 2018 to $57.18 million as at 30^th June 2019, reflecting an increase in revenues from commercial sales in the EU that led to a rise of 50% in cash and financial assets by the end of the year. Due to the rise in cash reserves during the year, the company did not raise any capital via equity or debt, depicting a robust financial position for investing in future performance.

Current Ratio and Net Profit (Loss) Trend (Source: Company Reports)

Cash Flow Position: Operating cash inflow for the year came in at $18.46 million, up from operating cash inflow of $11.69 million in FY18. Net cash outflow from investing activities amounted to $0.257 million, and financing activities during the year led to an outflow of $1.03 million.

Cash Flow Statement (Source: Company Reports)

Digging into CLINUVEL’s SCENESSE® Product Details: CLINUVEL is the first company that finished the clinical testing program in EPP patients, which primarily focused on unique genetic skin associated illnesses. Commercial sales of SCENESSE® in Europe came in at $26.49 million in FY19, up from $21.36 million in FY18. Total unit sales during the period grew 20% year on year, indicating robust demand for the medication from the European EPP patient residents. Reimbursement revenues under the Special Access Schemes for SCENESSE®, grew by 10% to $4.559 million for FY19 as compared to $4.126 million in FY18.

Recent Key Updates:

6. Short Position: The company recently released the CEO’s letter on ASX, wherein it reported that after receiving its first FDA approval in October 2019, the share price went up briefly and has seen sell-offs since then. At the time of writing, the company observed that apart from profit taking by long term investors, 6.91% of the CUV stock was shorted, which is equivalent to 18 days of ASX trading.
7. Appointment of Non-Executive Member: The company recently announced the appointment of Professor Jeffrey Rosenfeld as a Non-Executive Member of the company. Jeffrey has in-depth knowledge of the healthcare and research executive roles.

1. Director’s Interest Update: One of the directors named, Philippe Wolgen, disposed of 208,332 million unlisted conditional performance rights to acquire the same number of ordinary shares, as part of the company’s Performance Rights Plan. Total number of securities held after the change stood at 3,504,696 ordinary shares.

2020. TGA Approval: The company recently received an approval from the Australian Therapeutic Goods Administration (TGA) to register or file SCENESSE® under the priority registration process. The company intends to submit the SCENESSE® scientific dossier to the TGA in the first quarter of 2020.

5. September Quarter Highlights: During the quarter, a combination of cash receipts and net operating payments resulted in an increase of $5.39 million in net cash from operating activities. The company also incurred product manufacturing expenditures to meet the clinical demand for SCENESSE®. Expenses for promotional activities at key industry events increased by 2% q-o-q.

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 26.00% 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 FY19, the company had an EBITDA margin of 54.9%, up from the prior corresponding period margin of 48.5%. The margin has seen an improvement over the last three years period covering FY17 – FY19, with FY17 EBITDA margin at 41.6%. Operating margin also improved over the year with FY18 and FY19 margin at 48.4% and 54.6%, respectively. Net Margin of the company was reported at 57.4%, depicting an improvement on the prior corresponding period margin of 51.4%. The company had negligible debt during the year with a debt-to-equity ratio of 0.01x, as compared to the industry median of 0.19x, demonstrating a better financial position in comparison to peers.

Key Metrics (Source: Thomson Reuters)

Outlook:  With long-term strategic factors, the company opted for a self-distribution decision model and anticipated an upfront payment ranging between A$15 million to A$60 million. The company expects around 25% to 40% of royalty streams with a risk-free rate of 1.16% and the cost of equity (COE) of 11.4%. The company forecasts higher cashflows in this model as compared to the license agreement scenario. The company expects its business in Europe to produce robust earnings to finance its growth regarding activities like enhancement of products in the pipeline related to skin- related symptoms and further strengthen its foothold in the European distribution. In the US, the company is currently working with the FDA on agreeing with the final and mandatory protocol for post-marketing follow-up of EPP patients for a minimum of eight years. The company further expects to expand its product pipeline, with the enhancement of the molecules CUV9900 and VLRX001 via different enhancement phases. The phases incorporate formulation development, human and non-clinical testing. Additionally, the company has increased its resources and expanded its capabilities to advance these projects underway at VALLAURIX.

Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodologies: P/E Market-Multiple Approach

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

Note: All forecasted figures have been taken from Thomson Reuters

Historical PE Band (Source: Thomson Reuters)

Stock Recommendation: The stock of the company generated negative returns of 13.66% and 0.52%, over a period of 1 month and 3 months, respectively. In FY19, the company delivered a stellar result, driven by the increase in the number of SCENESSE units supplied to patients in Europe, the positive impact of foreign currency exchange rate exchange and a higher number of prescribers in Europe.  To drive further growth, the company increased its investment to develop its resources and enhance product pipeline. The recent approval from the US Food and Drug Administration (FDA) on 8^th October 2019 is yet another milestone for the company. As per the CEO’s letter, 6.91% of the CUV stock was shorted, and the percentage has gradually increased lately, which is not a phenomenon as exclusive to CLINUVEL. At CMP of $25.86, the stock of the company is trading at P/E multiple 39.48x of FY20E EPS. From the analysis standpoint, the company has recorded EPS growth at CAGR of 26.2 percent over the last three years. RoE stood at ~31.3% on a 3-year average basis (FY17-19) with cash conversion ratio of 53.5 days in FY19, which is below the industry median of 296.5 days.

The company has a market capitalisation of ~$1.33 billion and ~ 49.41 million outstanding shares. Currently, the stock is trading below the average of 52-week high and low of $48.88 and $15.75, respectively, proffering an opportunity for share accumulation. Considering the recent developments with respect to the key product SCENESSE®, strong cash position and decent outlook, we have valued the stock using a 3-year average P/E market multiple of ~45.43x to FY20E consensus EPS of $0.655 and arrived at a target price upside of lower double-digit growth (in percentage term). Hence, we recommend a “Buy” rating on the stock at the current market price of $26.860, down 2.231% on 04 December 2019.

CUV Daily Technical Chart (Source: Thomson Reuters)