Moelis Australia has retained its 'Buy' rating on Clinuvel Pharmaceuticals Limited (ASX: CUV) following the release of the biopharmaceutical company's half-year results. The broker has a price target of $32.15 for Clinuvel shares, 90% above yesterday's closing price of $17.10.
Shares in Clinuvel slumped last week, falling from above $25 to current levels as the market as whole fell on coronavirus fears, correcting from recent highs. The company reported its results late last week, with revenue in line with expectations but costs higher than expected.
Clinuvel results
Clinuvel reported an 11% increase in revenue which grew to $10 million. Volume growth, however, was softer than expected as Clinuvel benefitted from the weaker Australian dollar during the period. Softer growth was attributed to stocking orders in the prior corresponding period (pcp) ahead of supply concerns related to Brexit. Moelis expects second-half earnings to continue to grow at a similar rate as penetration increases in existing markets.
Costs were higher than expected, up 54% to $8.74 million as the company invests ahead of expansion into new markets. Net profit fell as a result of higher expenses, down 74% from the pcp to $1.059 million. Moelis is predicting core net profit after tax (NPAT) of $12.7 million in FY20, $13.5 million in FY21, and $17.6 million in FY22.
Clinuvel's balance sheet remains strong with no debt and cash of $57.43 million at the end of the half.
FDA approval
Clinuvel received FDA approval of its product, SCENESSE, in October. SCENESSE is used to prevent phototoxicity in adult patients with erythropoietic protoporphyria.
Following this approval, Clinuvel reports that it is increasing its cost base to allow for expansion into new markets and research and development activities. Increases to personnel, promotional and marketing expenditures, and internal development programs are aimed at meeting expected future demand for SCENESSE.
Expansion into new markets
With FDA approval in place, Clinuvel is positioned to increase its revenue base pending establishment of commercial operations on the ground in the US and agreement on reimbursement for costs of the treatment with US insurers.
With US and European regulatory approvals in place, Clinuvel is working to gain regulatory approval for SCENESSE in other markets worldwide. An application was made to the Australian Therapeutic Good Administration in December which was accepted in January, with results expected in 150 working days.
Clinuvel is currently exploring the use of the SCENESSE product in combination with phototherapy to treat vitiligo patients. This treatment combination is believed to promote repigmentation of the skin. Data from pre-clinical and clinical studies evaluating the effect of this treatment combination is expected to result in later stage clinical trials.
Foolish takeaway
Clinuvel should see higher earnings as the use of SCENESSE spreads, both geographically and in terms of the types of disorders it is used to treat.