Clinuvel Pharmaceuticals Limited

Company Overview: Clinuvel Pharmaceuticals Limited (ASX: CUV) is developing drugs to treat 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: The company remains focused on generating robust cash flows from its commercial operations and has sufficient cash reserves to fund its expansion strategy and create a financial shield to handle unfavourable economic circumstances. These cash reserves are required to implement the following goals:

Key Strategies; Analysis by Kalkine Group

Key Takeaways from 1HFY22:

• Top & Bottom-Line Performance: The company reported 1HFY22 revenues of ~$24.631 million, depicting a rise of ~56% yearly, owing to higher sales from commercial operations in the European economic area. The company’s NPAT decreased by 10% year over year and came in at ~$5.87 million, reflecting the utilisation of tax losses in 1HFY22, compared to an income tax benefit recorded in 1HFY21.

• 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. Patient treatment in the US depicted continuous growth, with acceptance by over 100 US insurers. This, in turn, facilitated greater year-round access to treatment for US patients.
• Liquidity Position: The company exited 1HFY22 with a cash balance amounting to $98.99 million, up from $82.69 million reported at the end of 30 June 2021. The company has nil debt at the end of 1HFY22, providing a robust foundation to finance future growth and expansion. Operating cash inflow in 1HFY22 came in at ~$17.32 million, an improvement from the cash inflow of $9.18 million reported in 1HFY21. During the period, the company reported cash receipts of $30.9 million, up from $17.28 million reported in the year-ago period, owing to higher distribution of SCENESSE® in Europe and the USA for adult patients suffering from EPP.

Balance Sheet Highlight for the Period Ended 31 December 2021; Analysis by Kalkine Group

Key Metrics: In 1HFY22, the company's gross margin stood at 99.8%, higher than the industry median figure of 86.3%.  The current ratio for 1HFY22 stood at 15.34x, as compared to 9.35x in 1HFY21.

Liquidity Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 23.78% 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 5.63% and 5.24%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group  

Risk Analysis:  

Any adverse movement in foreign exchange prices may impact the company's financial performance. 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 performance. 

Outlook: The company has created a positive record of prudent cost control and controlling expenses to support its growth and expansion strategy. It remains viable to build a sustainable business, thereby generating positive cash flow and profit and a decent liquidity position and cash reserves. CUV also remains on track to create a group with financial flexibility and specific expertise, thus building a solid foundation for expanding into a diversified and sustainable speciality pharmaceutical. To conclude, the company expects the clinical demand to remain robust, indicating the benefits earned from investment in the development of SCENESSE®.

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: Recently, CUV appointed Professor Sir Andrew Likierman as a Non-Executive member of the company. The stock of the company has been corrected by ~55.91% in the past six months. Currently, the stock has a 52-week high and low level of $44.67 and $16.76, respectively. The stock has been valued using the price to sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount to its peers, considering its supply chain disruption risk, increased costs, and expenditure, strict regulatory approval, etc. For that purpose, peers such as Starpharma Holdings Ltd (ASX: SPL), Telix Pharmaceuticals Ltd (ASX: TLX), and Medlab Clinical Ltd (ASX: MDC) have been considered. Taking into account higher demand from its key product SCENESSE®, robust liquidity position, positive cash flow from operations, strong top-line performance, decent long-term outlook, current trading levels, and indicative upside in the valuation, we recommend a “Buy” rating on the stock at the closing market price of $17.17, up by ~1.238% as on 13 April 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

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.

Disclaimer

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