Analysis - CUV - Clinuvel

Price($) 0.33
NTA ($) 0.22
P/NTA 1.52
Team 4
BurnPeriod 5.42
ProductPipe 12.6
ForeignMarket 3
Cash:Debt Debt Free



Previously known as Epitan, Clinuvel (CUV) is an "Australian biopharmaceutical company developing its photo-protective drug CUV1647 as a preventative treatment for a range of UV-related skin disorders as well as in cancer related treatments." Essentially 1 drug CUV1647 but with 5 applications. The product index is exceptionally high for a biotech at 12.6 (above 5 is good). This is due to CUV having over 2 pipelines in Ph III, 1 in PhII and 2 ready to start PhII.

On a quarterly basis, a few interesting financial patterns can be seen. The receipts have reduced from over $200k per quarter from 07Q1 to $0 in 08Q1. Although the receipts are relatively small compared to operational spending - this fact is interesting to note, suggesting that the operations that is earning income has stopped, perhaps to focus on trials. The 2007 Annual Report claims that the funding is sufficient for clinical trials until end of calendar year 2009. Fy07, including 08Q1, is one of CUV's highest spending period with investment spending of about $50m, and capital raising of $60m from equity.

This results in significant dilution of shareholders value with 302.15m shares and worth 3.3 cents a share. Hence the Price to cash is about 10 times - extremely risky. From the analysis of quarterly statements, if operational outflow remains at similar level with no large investments, then current cash level would last for another 5 quarters, 4 quarters short of CUV's prediction. In general, we consider cash lasting 8 quarters to be quite safe, and about 4 quarters to require a wait-and-see approach.

The management index of 4.0 is a about average but note that 2 PhD directors (excluding the current 4) have resigned. This may or may not reflect CUV's development into a late clinical stage company. Clinuvel has a presence in the US and Europe market by having offices there which are involved in clinical operations to an extent. The market exposure of 3.0 is slightly below desirable but not unacceptable.

In terms of product development, CUV has an excellent advanced stage pipeline with a product index of over 12 points. In general, we consider an index value above 5 to be good. CUV has two products undergoing PhIII and others at PhII or earlier. Biotechs at PhIII usually command good valuation with higher multiples over its NTA as will be considered shortly. The risk is that an unsuccessful trial, especially in PhIII, that fails will lead to extremely negative shareholder sentiment - a reduction of share value of 70% is not impossible.

All 5 of its top products currently in trial are based on a single compound CUV 1647. The advantage nature of several of these trials have de-risked safety issues related to this compound. Only efficacy of these drugs now need to be proven beyond PhIII and the multiple pipelines represent good diversification and increases of probability of compounds to market. The products range from protection against sun poisoning, sun intolerance to skin cancer related products.


The share price has been plunging from a high of over $1.2 in April 07 to the current value of about $0.35. Management believe this value does not account for any of its product potential at all. One speculative reason is the its 20% shareholder Absolute Capital Management (ACM) may have been affected by the credit meltdown of recent months. Apart of any unforseen financial obligation to ACM, the worst case scenario of the collapse of ACM is a sell-off of its holding in CUV. Despite this we believe the value of CUV should hold itself independent of its shareholders. At least 2 analyst reports value CUV to have a target price of over $1.00 (Analyst reports can be seen on the CUV's website).

According to the 2007 annual report, it holds about $28m in funds, with another $34m in cash. Ordinarily this is fine. But given the volatility of the share-market in recent times, the significant portion of $28m should be considered in the risky category and potentially worthless. Also note that in the latest quarter 08Q1, it has only over $9.9m in cash.

From the balance sheet point of view, CUV is debt free, as are most biotechs. In the current credit difficulty period, debt freeness is one less item to worry about. The intangibles are only a small fraction of total assets, yet due to the high number of shares, the NTA per share is only $0.21 - i.e Price/NTA of 1.52. This NTA is based on the 07Q4 which was $65.6m. To be conservative, removing the $28m of financial instruments (most likely liquid funds / derivatives) and also accounting for 08Q1 financial spending of $22m, that leaves NTA as about $15m. The revised Price to NTA ratio should be about 6 times, this is higher than desirable of 3 or below.

In summary, close scrutiny indicates that its financial position is not as cash-ready CUV would want investors to believe. Yet, with a number of late stage products in the pipeline, CUV should command a premium. Also taking technical analysis into account of the decreasing share price, the recommendation would be to buy CUV when it stabilizes slightly above half the current price at $0.20.

Recommendation: buy at $0.20 when stabilised.