Is the Clinuvel share price in the buy zone?

We take a closer look at new entry to the ASX 200, Clinuvel Pharmaceuticals Limited (ASX: CUV), and whether its recent share price dips have put it in the buy zone.

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The global pharmaceutical industry is huge, and it's growing. According to the Business Research Company, the global market is growing at 5.8% per year and will be worth US$1.171 billion by 2021. You might be familiar with the American mega corporation, Pfizer Inc., or Novartis AG, which trades on the Swiss exchange. Our local pharmaceutical industry is small in comparison to some of these overseas giants, but Australia has its own success stories.

If you're sticking with the ASX for your investments, where should you look to diversify into this sector?

Introducing Clinuvel Pharmaceuticals Limited (ASX: CUV)

Clinuvel has a reasonably narrow focus, in that it predominantly develops and markets pharmaceuticals for serious and rare skin disorders. Clinuvel is known for developing the compound SCENESSE, and if you're keen on taking a deep dive into the science you can read more about what it does here.  The company also has operations in Switzerland, the USA and Singapore.

The current environment

Back in June, Clinuvel was upgraded into the S&P/ASX 200 (INDEXASX: XJO) index. This index has taken a hit since Monday's open and Clinuvel's share price has not been immune to the sell off, closing yesterday at $27.09 – a 12.2% decline over the last two days. 

The key for new investors to remember is that, if you're like me, you're playing a long game. In April and early June of this year, Clinuvel experienced similar dips in share price only to achieve a record high price of $38.95 at the end of June. I highlight this point to show how quickly things can turn around. There will always be ups and downs on the sharemarket to varying degrees. I look to invest in well-run companies with great products that can roll with the punches in down times but at the same time demonstrate a history of steady and consistent growth.

Should I buy, or wait?

Despite the storm clouds over the ASX, I still think Clinuvel is worth further investigation. While the share price has lifted slightly today to $27.40, the temptation is there to wait and see if the price drops any further before purchasing. On a related note, the company's price-to-earning (P/E) ratio is quite high, leading some analysts to believe the share price is potentially overvalued. Others will see that as an indicator of anticipated higher earnings.

Setting aside the events on the ASX this week, Clinuvel's share price has grown a very impressive 104% over the past 52 weeks. Potential investors should note that the United States Food and Drug Administration is due to complete its review of SCENESSE in October. If successful, we could see significant future growth via the US market. In another recent announcement we learned that Clinuvel's European cash receipts were up significantly (121%) for the quarter due to unit orders of SCENESSE. A further factor to consider is that there is a "seasonal" aspect to Clinuvel's cash flow. Product demand can be significantly higher in the summer months, which can lead to vastly different revenue outcomes quarter to quarter.

Through my own research I came across Clinuvel's Instagram page, which serves to educate and enlighten followers in the hard science of its business in an approachable and easy to understand way. Potential investors may be well served by using this as a starting point for further investigation. Clinuvel is a complicated scientific enterprise with a lot of potential to grow over the long term. I think it's worth putting it on your "watch list" at the very least.

Motley Fool contributor JWoodward has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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