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Is now the perfect time to buy shares in Clinuvel?

At one point in October, the Clinuvel Pharmaceuticals Limited (ASX: CUV) share price was up more than 85%. The company’s share price has since pulled back to close out the month up more than 23%. Here’s a look at why Clinuvel shares could be a long-term buy.

What triggered the Clinuvel share price gains?

The Clinuvel share price started October at around $25 and hit a high of $45.88 during the month. Clinuvel’s share price soared 60% in a single session earlier this month after the company’s flagship SCENESSE product was given approval by the US Food & Drug Administration to be used on patients.

The surge in share price added $800 million to Clinuvel’s market value on the day, giving the company a $2.2 billion valuation, making it one of the top 150 listed companies in Australia. Since then, the Clinuvel share price has been sold off as investors take profit, closing the month up more than 23%.

What does Clinuvel do?

Clinuvel is a global biopharmaceuticals company that develops drugs designed for the treatment of severe genetic and developmental skin disorders. The company’s flagship SCENESSE drug is designed to prevent phototoxicity in patients with erythropoietic protoporphyria (EPP).

EPP is a rare genetic disorder that causes burns after brief exposure to light. Clinuvel’s SCENESSE drug is a slow-release implant that activates melanin, with patients needing about 6 implants per year to be protected permanently.

How has Clinuvel performed this year?

Earlier this year, Clinuvel reported strong full-year results, posting its third consecutive and record annual net profit before tax for FY19. Clinuvel saw a 21.8% increase in revenue of $31.05 million and a 40% increase in net profit before tax to a record $18.1 million for the year. Other milestones for the company included paying a maiden, unfranked dividend and joining the ASX 200 index in 2019.

SCENESSE continues to be the company’s flagship drug, marking 3 years of continued distribution in Europe and is a key driver of Clinuvel’s ability to deliver shareholder value. FDA approval provides Clinuvel access to the lucrative US market. The company currently has $54.2 million in cash, which it can use to expand into the US market and improve research and development.

Should you buy?

After entering the ASX 200 this year, Clinuvel shows great potential for the medium- and long-term. In addition, the company has extended its employment agreement with CEO Dr. Philippe Wolgen for a further 3 years. FDA approval into the lucrative US market and continued product innovation is also promising.

In my opinion, I would keep Clinuvel on a watchlist and wait for the share price to consolidate further before buying shares in the company.

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Motley Fool contributor Nikhil Gangaram 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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