Clinuvel Pharmaceuticals (CLVLY)

[FarmaZutical]

CLINUVEL DUE DILIGENCE REPORT – UPDATED AUGUST, 23rd, 2016

WELCOME

Welcome to the Clinuvel iHub. There are some very active forums out there with valuable information about this company, but awarenes about both the stock and the products is very limited in the US so my goal is to provide a comprehensive walk through of the company, the products and the investment opportunity it represents so new investors have a place to start their DD.

In my view this is one of the most interesting and undervalued biotech companies right now. The fact that the lead drug obtained EMA approval late last year for the absolute light intollerance disorder, EPP and is now rolled out in Europe de-risks the stock. The company is also peforming mid to late stage trials in the depigmentation disorder, Vitiligo and resluts seem very good. Moreover, the company will seek label extensions for other uv related disorders once roll out of Scenesse for EPP is underway.

The clever investor with a little patience will see, that the historic approval of the World’s first tanning agent holds an extreme upside when the first medical indications are rolled out and broader use can commence. Eventually, Scenesse could be a general preventative for skin cancer due to the protective tan it provides and then the numbers get very big. But EPP alone will make the company very profitable very soon, and roll out in Europe is now a fact.

LATEST NEWS:

EU countries coming online:

Holland and Austria are now online. Germany is likely to follow in September, 2016. Norway is also evaluating Scenesse and is likely to decide within 6 months.

On May 17th Clinuvel announced that preparations for launch are now active in 9 EU countries and that more will follow in 2016.

Link to the announcement:

http://www.clinuvel.com/index.php?option=com_k2&Itemid=8&id=528_db768a583c49d195c5bc87a1899dfb19&lang=en&task=download&view=item

Price per implant:

Clinuvel gets favorable validation of the new asking price per implant from the German drug watch dog, IQWIG. According to the newly released report, IQWIG finds that $21.971 is a fair price for one Scenesse implant. This is major news, as it is now possible to roughly calculate the future revenue stream for EPP in Europe. In Germany, the MAH negotiates a rebate with the Statutory Health Insurance (SHI). This rebate might be between 5-20 %. While NICE HST is also evaluating Scenesse at present time and is expected to make a final decision within 6 months, we will probably know the final price per implant in the reference countires Germany and Britain by January 2017. Clinuvel says it is aiming for a uniformed pricing model in Europe, but variations will of course occur. A final price between $18.000 – 21.000 is not unreasonable.

Link to the IQWIG report:

https://www.g-ba.de/downloads/92-975-1359/2016-05-10_Bewertung-Therapiekosten-Patientenzahlen-IQWiG_Afamelanotid.pdf

Furthermore, IQWIG estimates that there are 450-900 adult EPP patients in Germany. This is significantly more than most people thought, and I expect the picture to be the same throughout Europe which again will lead to higher than anticipated revenues from EPP.

BACKGROUND:

Clinuvel is an Australian biotech company with headquarters in Melbourne, Australia and an operating office in Baar, Switzerland. The company was formely know as EpiTan but changed it’s name to Clinuvel in 2006 following a change in management.

http://www.lifescientist.com.au/content/biotechnology/news/epitan-opts-for-name-change-854737925

EpiTan tried to promote EPT1647 (later known under the trade name, Scenesse) as a cosmetic drug which wasn’t very popular with the FDA or the EMA. No regulator wants to approve a drug solely for cosmetic use, and Epitan almost went bankrupt.

A new CEO was brought in, Philippe Wolgen, and under his guidance the company has performed er very successfull and well managed turnaround. Off label is now an absolute no-go if you ask the CEO and the strategy is to devellop Scenesse for patients with legit conditions. Last year this strategy resulted in a historic marketing approval of Scenesse following the longest review process in the EMA’s history. It too several years and heavy involvement by patients, patients advocates and scientists who spoke in favor of the drug in person in front of the CHMP – the council that desides whether a drug gets approval or not.

http://www.clinuvel.com/en/investors/news-publications/announcements/2014-announcements/clinuvel-invited-to-emas-chmp-plenary-session-for-an-oral-explanation-on-scenesse%C2%AE-maa

http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medicines/002548/smops/Positive/human_smop_000747.jsp&mid=WC0b01ac058001d127

http://www.clinuvel.com/en/news/company-news/new-england-journal-of-medicine-publishes-pivotal-phase-iii-scenesse%C2%AE-studies

http://www.nejm.org/doi/full/10.1056/NEJMoa1411481?af=R&rss=currentIssue&;;;;

It appears that the EMA was and still is worried that Scenesse will be used by people who just want a nice glow through sunless tanning. Therefore, the scrutiny reached the absurd, but finally, the CHMP approved Scenesse as a profylactic treatment for people suffering from the extreme light intollerance disorder, EPP in all European countries.

http://www.clinuvel.com/en/scenesse/epp

Investors were thrilled. For more than a decade many had witnessed the PPS decline or stay at depressing levels. But many, my self included, didn’t want to sell because of the potential of Scenesse. In my view, this is truely a drug that can change the world. Now, the historic approval paved the way for some exictement, and the stock went up quite a bit following approval. But the EMA had more hurdles in store for Clinuvel. They wanted a comprehensive post-marketing risk plan (RMP) in place to avoid off label use of the tanning agent. They seems to be afraid that people will stop using the dangerous tanning beds and turn to the safe and protective alternative: Scenesse. It seems stupid but that’s the way the regulative system works. For almost a year, Clinuvel has been working on such a safety program involving monitoring of all the patients who recieve Scenesse and a post marketing study as well. That has led to the declining share price but lately the share price seems to be going in the right direction due to imminent and final PRAC approval of Clinuvel’s safety program.

Another reason for the declining share price was that New York Based company, Retrophin (RTRX) tried but didn’t succeed with an unsolicited take over of Clinuvel.

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CB4QFjAAahUKEwihwr39x93HAhXFaT4KHdJmBjs&url=http%3A%2F%2Fwww.clinuvel.com%2Fen%2Finvestors%2Fnews-publications%2Fannouncements%2F2014-announcements%2Fclinuvel-declines-unsolicited-proposal-from-retrophin&usg=AFQjCNHJzsB_oq-_PKPuSSnpCWqugPlx7Q

Prior to the takeover proposal Retrophin, under the supervision of the former CEO Martin Shkreli, had been accumulating millions of shares in Clinuvel, and when Clinuvel declined the offer and Shkreli was ousted from Retrophin, the new management decided to sell all shares in Clinuvel.

http://biz.yahoo.com/e/150511/rtrx10-q.html

This caused a huge selling pressure and most likely caused the share price to depreciate along with investor fatigue because of the new safety requirements following the long awaited EMA approval.

But now we seem to approach crunch time. Scenesse will be sold in the first European countries this spring and the company is in talks with the FDA about accelerated approval in the US while patients and organizations put tremendous pressure on the FDA to approve. Furthermore, full trial results from the Company’s Phase IIb in Vitiligo performed in Singapore are due anytime. If the results are positive, investors will probably begin to see how extremely undervalued this company is. Former trial results bode well:

http://www.medscape.com/viewarticle/832214

Now, lets play with some numbers.

Shares out: App. 47m.
Market Cap: $150m. (USD)

EPP:

Prevalence is said to be 1:75.000 to 1:200.000.
Many patients are know by the specialized porphyria centers in Europe and the US but due to general unawareness of the conditions many patients are believed to be undiagnosed. Roll out of Scenesse will most likely change that.

Europe: App. 4500 patients.

Price per implant is now roughly $25.000 USD. I expect the price to fall to app. $22.000 when negotiations have taken place in Germany and the British HST under NICE has evaluated Scenesse later this year. Patients will get 3-4 implants per year to be protected from UV and visible light throughout the months with the most sun.

That’s + $400 million per year for Europe alone with full coverage. Costs will be low because Clinuvel is distributing Scenesse directly to the porphyria centers who have already been working closely with the company throughout the past decade. Lets be conservative and assume that 25 % is spent on running the business and that 1000 patients will get the implant fairly quickly. Considering how desperately they are awaiting the implant, that’s not a long shot.

That's app. $66 million / 47 m s/o = 1.4 EPS. A ratio of 20 is not unimaginable. That's $28 for EPP alone. Low ball.

With more European patients this number will go up exponentially. Add FDA approval and that number will probably double.

Also, the company is develloping a melanocortin analog for topcal use through their 82 % stake in the Singapore joint venture, Vallaurix. It’s meant as a pediatric version for of the implant in the treament of EPP and as a follow up for Vitiligo. But imagine when the word gets out that the already approved tanning implant is about to be released as a cream. Future on and off label use is not priced in the EPP numbers at all.

VITILIGO:

http://www.ncbi.nlm.nih.gov/pubmed/19608058

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&ved=0CDkQFjADahUKEwj7tMC0z93HAhXKNj4KHcHVAPE&url=http%3A%2F%2Fwww.clinuvel.com%2Fen%2Finvestors%2Fnews-publications%2Fannouncements%2F2014-announcements%2Fscenesse%25C2%25AE-vitiligo-study-results-published-in-jama-dermatology&usg=AFQjCNGIu_G_tcUZDDLMDrZ1quPpQbKxKA

Prevalence is app. 50 m. world wide. Let’s assume that the price per implant drops significantly when such a broad patient population will have access. But even with a very low price per implant of let’s say $500 and 5-10 required implants in the combination therapy that’s $2500 – 5000 per patient.

With app. 3.200.000 Vitiligo sufferers in the US (Michael Jackson was one of them) let’s say that 5 % will use what I believe will become the new standard of care: Scenesse in combination with narrowband UVB.

That’s 160.000 patients yearly and between $400 – 800 m. Clinuvel will most likely require a partner to perform the last Phase III trail and to bring Scenesse to market to treat Vitiligo, so let’s assume that Clinuvel can keep 40 % (on top of up fronts and milestones that I leave out just to be conservative.)

That’s a share price of <$71 for Vitligo in the US using very very conservative numbers. I believe that Vitiligo could cause the share price to go above $200 but I don’t want to be ridiculed as a dreamer.

LABEL EXTENSIONS:

Clinuvel has stated that they will seek label extensions for some of the many other conditions that involves intollerance to light. They have performed numerous phase II and III trials and I see many obvious label extensions down the road.

http://www.clinuvel.com/en/scenesse/clinical-results

http://www.clinuvel.com/en/scenesse/ongoing-clinical-trials

OWNERS:

Facebook founder Sean Parker owns app. 4.5 % ow the company. Lagoda Investment Management owns a little more than 10 % but it does not show in their 13F filings but it shows in the ASX filings:

http://www.asx.com.au/asxpdf/20160411/pdf/436fg7v0dtxdll.pdf

Besides some vert loyal significant private investors there is also strong institutional backing.

Latest institutional ownership:

Fidelity Funds SICAV - Pacific Fu... 6.74% 3,170,824 10,526,184 +700,100 +28.34%
Fidelity Asian Values Plc 1.45% 682,942 2,267,163 +150,721 +28.32%
Fidelity Funds SICAV - Asian Smal... 0.81% 381,567 1,266,688 +84,211 +28.32%
Fidelity Japan Japan/Asia Growth ... 0.28% 132,512 439,900 -5,323 -3.86%
Perinvest (Lux) SICAV - Global He... 0.14% 66,000 219,100 +66,000 --
NEF - Azionario Pacifico 0.12% 57,072 189,462 0 0.00%
Wagner & Florack PIC Fund AMI 0.12% 56,302 186,906 0 0.00%
DFA Asia Pacific Small Company Se... 0.10% 46,902 155,701 -1,919 -3.93%
Fidelity Funds SICAV - FAWF Pacif... 0.09% 43,113 143,122 +4,887 +12.78%
Smith & Williamson Unit Trusts - ... 0.08% 37,441 124,293 0 0.00%


Disclaimer: I am long Clinuve and I am still accumulating. I have been in this stock for + 10 years and I have never sold a share.
I believe that Scenesse will revolutionize the way humans protect themselves against the sun and UV. I also believe that off label use will be the norm sooner rather than later when the FDA approves Scenesse for EPP and / or Vitiligo.