Ann: SCENESSE Treatment in Europe-CUV.AX, page-3

After my rough comparison to SRX, I got to thinking more about the valuation of Clinuvel. Clearly by almost any metric Clinuvel is currently massively undervalued if predicted revenues come to fruition. It is just not on anyones agenda. Investors have been burnt and bored and Wolgen treats them with contempt. Clinuvel has no analyst coverage and no exposure. A mention in the Murdoch press last week rated Clinuvel a sell. ASX long tail described Clinuvel as junk, to be avoided.

We learned this week for the first time the extent that Wolgen also has been frustrated by the regulators however that now is mostly history in Europe, Clinuvel’s largest market for EPP.

So what is a fair way to value Clinuvel at this point in time. This depends on 3 things :

1. The risk ascribed to Clinuvel
2. The anticipated revenue
3. How long before that revenue is realised

With the release of the information last week there is now less mystery in addressing these issues.

1. Risk : Just focussing on European distribution, the risk is now very, very low. The drug is approved and all regulatory hurdles have been cleared (other than hospital HREC in each EPP centre). The EPP population are demanding access. The drug has a long history of safe, effective administration.

2.   Revenue: The release of the pricing in Germany of 22,000 Euros per implant is revealing and integral to a valuation. Whilst this is not a final negotiated price (this will occur in Germany in 12 months and sooner in UK and Holland), it gives a strong indication as to what Clinuvel thinks is fair. Wolgen supported this with his comment that Scenesse is priced at the lower end for ultra orphan medications for serious diseases. Final agreed pricing from NICE or Holland will be revealing but I do not see the price differing by more than 25% (say 18,000). We also learnt that the number of implants per patient is not capped at 4 by the EMA but will be determined by the treating physician, possibly with input from the payor.

Previously reported long-term observation data from the Swiss and Italian programs showed that 97% of patients considered afamelanotide to be effective in ameliorating EPP symptoms and 93% adhered to treatment for prolonged time, if there were no compelling reasons to discontinue, indicating clinical effectiveness. 173 patients were known to the treating centres, 115 were treated, indicating a take up rate of over 65%. The number of patients treated increased during the 8 year observation period. So lets work on 65% of EPP patients staying on 3 implants per year. These are conservative assumptions based on the 8 year published data. How many EPP individuals between the age of 18 and 70 are there. This is going to be a guess but we roughly know the Swiss and Italy (Rome) numbers at 173, we also know that the numbers are higher in Holland, Germany and UK. German numbers were released last week as between 450 and 900. I have been using 2000 as a conservative total EU number.

The anticipated revenue then is 65% of 2000 = 1300 patients to be treated. 3 implants each = 3900 implants @ 18,000 Euros = 70 million Euros per year. (AUD 110 mil)

3. When:  Revenue will begin from Q1 FY17 (Germany) and build as more countries come on board. Negotiating revenue can be difficult and is not always successful. However, there is no other treatment and the numbers are very small from a health budget perspective. For an emerging biotech revenues are real and imminent. I expect most large countries (3-6) will be providing Scenesse with 12 months.


So what PE should we apply to this projected revenue. Given that these numbers will potentially double with a positive FDA outcome (which I attribute a 70% probability). I think a PE of 50-60 is consistent with Aus biotechs. With a state of likely increased revenue growth as US and more Eu countries come on board. CSL, Australia’s biggest pharma has a PE of over 30, Cochlear has a PE of 40 with very stable growth. PE’s reflect the future where revenue is expected to accelerate PE’s can be in the 100’s because shares are priced well ahead of the actual revenue.

Cochlear : revenue 900 million, Net profit after tax around 100 mil, MC 7 billion

Sirtex : revenue 200 million, Net profit after tax 50 million, MC 1.8 billion

Nanosonics : revenue 30 million, Net Loss, MC 666 million

Clinuvel Predicted: revenue 110 million, Net profit 80 million, MC 1 billion (share price $20)


So, how can I calculate that the share price could/ should be $20 in 12 months when the market currently values Clinuvel at $5 (a 10 year high)? I must have made a mistake somewhere, tell me please. I could have erred in risk, but I don’t think so, remember this is just EU EPP. I could have erred in revenue, we have the price and we have 8 year usage data. The numbers may be less than 1300 but I don’t think so. Maybe it will take more than 12 months to reach these numbers. Seeing a pricing outcome from Holland or UK would reduce the risk but is this delay worth a discount of 300%?

Please feel free to criticise.