No-moat Clinuvel CUV is suspending early-stage clinical trials evaluating afamelanotide, a synthetic drug already used in its main Scenesse product, as a treatment for DNA repair, Parkinson’s Disease, and stroke. However, these programs were all too early for us to ascribe any material value. We leave our $18 fair value estimate and earnings estimates unchanged, with shares remaining undervalued.

We think the strategy to focus on existing indications of erythropoietic protoporphyria, a rare genetic disease that causes extreme pain from exposure to light and its potential indication for vitiligo, is strategically sound. We see Clinuvel as well-placed for service development, commercial, and promotional initiatives. We expect total operating expenditure will be within the projected $175 million over the five years ending fiscal 2025, with roughly $50 million of the original target remaining for fiscal 2025.

We suspect the market is likely too pessimistic about the speed and extent of Clinuvel's commercial rollout of Scenesse for its existing indication, which contributes 81% to our fair value estimate. We forecast a group earnings per share compound annual growth rate (“CAGR”) of 11% for the next five years, while Scenesse will remain fairly protected from competition due to the patent portfolio. We think the market is also underestimating potential new earnings streams. While broader indications, including vitiligo, are still in clinical trials, early efficacy and safety data are positive and would greatly expand Clinuvel's addressable market if successful.

We still expect a focus on direct distribution to support market share gains for Clinuvel. It is active in over 87 specialty centers in the United States and intends to expand to 120 within the next two years. We forecast combined market share across Europe and the US to grow to 38% by fiscal 2034 from an estimated 14% in fiscal 2024. Our forecast five-year group revenue CAGR is 12%.

Business strategy and outlook

Clinuvel’s strategy revolves around expanding its direct distribution for adult erythropoietic protoporphyria, or EPP, patients. This involves training and collaborating with doctors and accrediting the specialist skin centers they practice in to prescribe Scenesse. By focusing on distribution, Scenesse is more accessible to a greater number of patients, and supportive of organic top-line growth.

Clinuvel also focuses on increasing coverage and reimbursement support. In the US, Scenesse is well covered by over 100 national and local private insurers, as well as Medicare and Medicaid. Billing codes are in place to reimburse EPP diagnosis, the drug, and implant administration, allowing for a streamlined insurance claim process. In Europe, Scenesse is covered by several payors, but more limited than in the US. In the UK and Australia, the drug is approved but not covered by national insurance and therefore not yet commercially available to patients.

The firm invests heavily in its in-house research and development, roughly 30%-40% of sales, largely to explore and receive regulatory clearances for applications of Scenesse products beyond the adult EPP market. In the near term, the company is aiming to receive label expansion for patients 12-18 years old who make up roughly 10% of all EPP patients. The firm is also conducting clinical trials for the use of Scenesse for other indications including xeroderma pigmentosum and vitiligo. We incorporate a 33% probability of vitiligo approval in our base case, and if successful, Clinuvel’s existing distribution network of specialist skin treatment centers can support growth into these new markets.

Apart from Scenesse, Clinuvel is also early in developing additional melanocortin pharmaceuticals including Neuracthel, a generic drug that produces cortisol for children with infantile spasms and adults with multiple sclerosis, and Prenumbra, a potential treatment administered after a stroke event. Clinuvel is also in the early stages of launching a range of topical consumer products, including a consumer-friendly risk-free tanning product and a cellular DNA repair cream. We think these efforts are likely to drive incremental sales.

Risk and uncertainty

Our Morningstar Uncertainty Rating for Clinuvel is High. There is commercial execution risk surrounding the pace and success of Clinuvel’s global sales roll-out, timing and expenses needed to get potential further indications approved, and the cost base required to support the firm’s revenue ambitions. With the company still trialing many indications, there is elevated uncertainty.

The key unknowns are regarding potential new indications. If successful, this would materially contribute to growing Clinuvel’s addressable market. However, there is no assurance that ongoing and future trials will achieve efficacy and safety endpoints, let alone receive regulatory clearances. Another key unknown is once Scenesse eventually comes out of patent protection and loses exclusivity, whether generic competition will be fierce and cause significant pricing pressure.

The primary environmental, social, and governance risk to Clinuvel is related to product governance, where a significant failure in quality or safety leads to a product recall or redesign. A serious failure may also expose Clinuvel to patient liability claims and severe reputational damage. However, we view this as having a low likelihood given European regulatory clearance in 2014 and a lack of noteworthy incidents given Scenesse’s biodegradability and slow-release properties. Failure to recruit or retain adequate sales talent may also contribute to declining sales growth. However, we do not think Clinuvel will be challenged in managing human capital, with the company offering competitive compensation and continually building on its employee base.

Clinuvel bulls say

  • Scenesse is the only approved treatment for phototoxic reactions specifically associated with a rare genetic disease called EPP and is fairly protected in the near-term from competition.
  • The company requires little invested capital and is expected to generate very high returns as it continues to expand its direct distribution.
  • Clinuvel aims to receive approval for Scenesse label expansion for adolescent EPP patients and shows promising signs to utilize its technology for other indications.

Clinuvel bears say

  • There is high uncertainty on the success and timing of Clinuvel’s efforts to diversify its earnings beyond its single product, Scenesse, currently approved for the single niche EPP adult market.
  • There appears to be no significant switching costs for physicians and patients to adopt potential competing products.
  • The existing patents do not provide extended cover for Scenesse for EPP and expire from 2026.

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Terms used in this article

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