Clinuvel Pharmaceuticals (CLVLY)

[FarmaZutical]

ValueFox of SS has posted this. I appreciate the conservative approach but I personally assume higher figures.

I have taken a quite conservative approach, mostly to find the "bottom" value. This figure gave me enough confidence to put half of my portfolio value into CUV without losing sleep, and of course I personally welcome every upside to this.

Here are some of my key assumptions:
EPP:
- 1500 patients globally
- penetration of patient population grows from 20% (year 1) to 80% in year 5 (very conservative)
- 3,5 implants per patient per year
- price per implant: 22 kEUR
- price decline per year: 4% (not very likely on EPP, but I assume for vitiligo we need to go to a lower price level)
- minimum price EPP: 10 kEUR (that's were the price decline stops)

Vitiligo:
- 1.2 mn patients globally
- Vitiligo first commercial sale: 2021 (very conservative, but considering Pierre Walnut's time dimensions)
- price per implant: 8 kEUR (not sure if price differentiation will work, but a EPP like price will limit penetration as vitiligo impact on quality of life is less severe than EPP)
- price decline per year: 5 %
- minimum price Vitiligo: 4kEUR
- implants per year: 2 (conservative)

General assumptions:
Cost of goods per implant: 3 kEUR (very conservative), going down to 1.5 kEUR over time (still conservative)
SG&A rate: 25% of sales in year 1, going down with growth to 20% (very conservative)
R&D rate: ~15% of sales (which would create additional applications and hence growth I did not account for)

The reason why I picked comparably high SG&A and R&D levels for a single-product company is because I felt quite uncomfortable with the EBIT percentages I get with lower assumptions. Now, the final EBIT margin is in the range of 20-30% which I feel comfortable with for a niche pharma company.

With a non-diluted no of shares of ~47 mn, this leads to a value of 14.5 EUR per share (~ 21.5 AUD).

I excluded topicals (and multiple other potential applications) as it is very easy to inflate the value and get results that are very sensitive to assumptions.

I have been working with a bunch of dermatological experts a few years ago, and they were very sceptical about getting such a large molecule through the skin into areas where it can effectively impact cell metabolism. If I hear that they improved the drug, I still find it hard to believe that they can overcome the molecule size problem (still, I am not an expert).

If a topical application would work at reasonable price, that would be major disruption to two key markets

- sunbeds/solariums (poor market figures, but if I remember correctly 8-10 bn EUR annual revenues)
- sun protection (should be around 5 bn EUR if I remember correctly)

If Clinuvel could take 25% out of each (conservative), that's revenue potential of additional 3 bn EUR instantly, and maybe more in the long run - as you could suddenly get a tan without getting wrinkles or increasing your skin cancer risk.

Some information I missed on the first post:

Vitiligo penetration year 1 (2021): 1% of all patients, increasing to 5% after 10 years
==> I am quite sceptical about vitiligo penetration at high prices. If the price comes down significantly, then more patients/insurance companies in lower GDP per capita countries might be able to afford it - but vitiligo simply does not have such a severe quality of life impact as EPP.

Discount rate: 15% equity costs, debt 6% (gives a WACC around 8%-10%).

I have assumed rather high dividend payout rates as this will be literally a cash machine. Year 10 (2025) has a dividend of >2 EUR per share (at 47 mn shares).

Ah, that leads me to one more remark: The DCF result of 14,5 EUR per share is as of now. In e.g. 2025, the fair value of the stock should be around 35 EUR per share (at a P/E ratio of 15) - this is the point of time in my model where both EPP and vitiligo are in full swing, no further growth expected from them. Every other application (topical, tanning) comes on top.