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Here’s why this broker rates Clinuvel Pharmaceuticals shares a buy

Broker Moelis Australia has rated Clinuvel Pharmaceuticals Limited (ASX: CUV) a ‘buy’ with a price target of $44.42.

Clinuvel is a biopharmaceutical company focused on developing treatments for genetic and skin disorders and Clinuvel shares are currently trading at a price of $29.19 per share.

The product

Currently Clinuvel has one product on the market, Scenesse, which is used to treat a rare metabolic disorder, erythropoietic protoporphyria (EPP). EPP causes severe phototoxic reactions to sunlight. Scenesse was approved in the European Union (EU) to treat EPP several years ago and was approved in the United States (US) in October. Clinuvel submitted an application to the TGA for Scenesse to be registered in Australia in December.

Financial results 

Clinuvel delivered a return on equity of 27.97% in FY17, 32.3% in FY18, and 31.57% in FY19. In FY19, Clinuvel revenues increased nearly 22% to $31.02 million, while expenses rose only 8% year on year. Net profit before tax increased 40% to $14.38 million, and basic earnings per share of 37.6 cents were recorded, up 35.7%. Clinuvel declared its maiden dividend in FY19 and paid total dividends of 4.5 cents a share in 2019, unfranked. 

Addressable market 

The company reports that its rollout of Scenesse in EU markets is progressing in line with expectations, with uptake continuing to grow. Moelis Australia sees potential upside in the medium term should the European Medicines Agency relax the maximum 4 doses per annum. Preparations for launch in the US are underway, with Clinuvel engaged in discussions with US insurers and in the process of setting up a US office. First US sales are expected in 2H21. 

Forecast

Moelis Australia is forecasting net profits after tax of $12.1 million in 2020, $15.4 million in 2021, and $25.6 million in 2022 for Clinuvel. Earnings per share are expected to be 23.9 cents, 30.5 cents, and 50.8 cents in each year. The broker predicts Clinuvel will pay dividends of 2.5 cents per share in 2020, 2.9 cents in 2021, and 4.4 cents in 2022. Moelis notes that potential upside could come from faster than expected ramp up in the EU and the US and any success expanding into new indications.  

Potential new products

Successful regulatory approval of Scenesse will likely increase the probability of approvals for new indications of the drug. Clinuvel has announced an intention to develop a product targeting the prevention of skin cancer using the drug. Additional potential applications could provide potential upside. 

Foolish takeaway 

Clinuvel has a unique product and is expanding its market footprint. There is potential for the drug to be applied in new applications in future, which would open up new markets.

The Clinuvel share price is up 3.58% this morning on the news, currently trading for $29.19 per share.

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Motley Fool contributor Kate O'Brien 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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