There is so much more than the FDA approval

Clinuvel reported its H1/2018/19 report (30/06) this week. Revenues (AUD 9.0 million, +27.0% YoY) came in below our expectations despite positive currency effects. Since total expenses (AUD 5.7 million) were below last year’s level mainly due to lower costs from general operations, operating profit almost tripled to AUD 3.3 million from AUD 1.2 million in H1/2017/18, and EBIT margin more than doubled to 36.7% from 16.7%.

During the following months we expect a steady positive news flow from Clinuvel. Main topics will be announcements regarding (1) the US Food and Drug Administration’s assessment of the risk-benefit profile of Scenesse in the prevention of erythropoietic protoporphyria (EPP) symptoms (to be announced on July 8), followed by submissions of New Drug Applications to authorities in Japan (PDMA) and Australia (TGA); (2) the Phase IIa proof of concept study where patients suffering from orphan disease variegate porphyria (VP) will be treated with Scenesse; (3) progress in the upcoming scientific vitiligo studies which would give Clinuvel access to an untapped market of substantial size; (4) announcements of a third indication, most likely xeroderma pigmentosum (XP), a disease which is defined by extreme sensitivity to sunlight (and therefore similar to EPP); (5) the appeal against the decision of the UK National Institute of Health and Care Excellence (NICE) not to recommend Clinuvel’s Scenesse for use by English National Health Service for adult EPP patients (March 14, 2019); (6) inclusion in the ASX 200, the benchmark for Australian equity performance; (7) the potential Nasdaq listing.

Following the strong outperformance of the shares since initiation of our research coverage (+197.6% vs. ASX 200 +1.1% and DAX -13.8%), we have adjusted our valuation methodology. Contrary to our previous method, we have now included additional medical indications, even with the lowest possible penetration rates. We therefore consider our valuation a worst-case scenario. Notwithstanding our rather conservative approach, we calculate a base-case scenario equity value of AUD 2,788.7 million or AUD 58.40 (previous AUD 32.70) per share; a Monte Carlo simulation calculates bear and bull case scenario equity values of AUD 84.80 and AUD 32.10 per share, respectively. In light of an expected 24 months price potential of 126.9%, we reiterate our buy rating for the shares of Clinuvel.