Why is Clinuvel Pharmaceuticals receiving the market’s cold shoulder?

Biopharmaceutical company Clinuvel Pharmaceuticals (ASX: CUV) shares were down -1% in early morning trade following yesterday's news that the company had completed enrolment in its world-first study of afamelanotide as a treatment for arterial ischaemic stroke (AIS) patients.

The company noted that Afamelanotide treatment was well tolerated by all patients, with no adverse drug reactions reported.

Commenting on the recent announcement, the company’s head of clinical operations, Dr Pilar Bilbao noted:

“We eagerly await completion of the CUV801 study and analysis of final results in 2022."

"Clinical observations and learnings from CUV801 are already helping us to design the next studies, with the hope that afamelanotide can be administered to a wider population of stroke patients who lack treatment.”

The market’s underwhelming reaction to yesterday's announcement follows a routing received by the share price since late last year. Despite the release of any noteworthy bad news, the company’s share price has free-fallen -40% from $43.10 late September to $25.47 today.

Is the stock screaming value?

Given that Morningstar has a fair value of $41.29 (23/12/21) on the stock, investors could be forgiven for concluding that the stock has been unloved, overlooked and seriously undervalued due possibly to overreliance on too few products.

Last November, management advised the market that it was not aware of any material non-public information following a ‘please explain’ query by the ASX in response to the company’s meteoric share price fall.

Ironically, yesterday's positive announcement follows a trickle of similarly positive market updates from the company over the last few months, these include:

A new small-scale trial in stroke patients, and progression of research for the company’s vitiligo and DNA repair programs.

Inflation-based sell off

It’s no secret that tech and biotech stocks with valuations - based on earnings well into the future - have been sold off in the wake of ongoing evidence the inflation genie in Australia, the US and Europe is well and truly out of the bottle.

It’s not rocket science, as inflation goes up, a dollar of future profit is simply worth less in today’s dollars. Admittedly, that shouldn’t hugely impact companies with solid core earnings.

The trouble is, with stocks like Clinuvel, a lot of the value the market factors into the current price is based on future earnings.

Inflation aside, another factor that may have caused Clinuvel’s share price to tumble could be the healthcare sector’s global preoccupation with an onslaught in omicron case numbers.

However, everything being equal any difficulty Clinuvel might experience getting its therapies into the hands of patients – especially if all non-emergency admissions are on hold – should be relatively short-lived.

Rising revenues

Listed on the ASX in 2001, Clinuvel declared a profit for the first time in FY2017.

Fast forward to last year, and the company’s FY2021 profit was a record $25.7m before tax, with a rise in revenues of 43% to $48.5m and a contained 2% rise in expenses to $22.7m.

Due to growing support for Scenesse, the company’s treatment for a rare light sensitivity disorder, revenue within the most recent quarterly result increased 48%.

Management also noted that patient retention has been steady at over 95%, with the company’s rollout in the US off to an encouraging start.

Watch this stock

In the absence of any notable signals that Clinuvel is a value-trap in play, investors would do well to keep this stock in radar.

Despite the company’s market cap ($1.2bn) which puts it just inside the ASX300, too few brokers appear to cover the stock.

Every picture tells a story

Clinuvel's share price performance overs six months versus the healthcare index