Why the Clinuvel Pharmaceuticals share price plunged 26% lower today

The Clinuvel Pharmaceuticals Limited (ASX:CUV) share price crashed 26% lower on Wednesday. Is this why?

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It certainly has been a volatile day of trade for the Clinuvel Pharmaceuticals Limited (ASX: CUV) share price.

The biopharmaceutical company's shares fell as much as 26% to $22.24 at one stage today, before recovering a good portion of this decline.

At the time of writing the Clinuvel share price is down 9.5% to $27.17.

Why did the Clinuvel Pharmaceuticals share price crash lower?

Although Clinuvel released its latest newsletter this morning, I don't believe this was the catalyst for the selling. Having read through the release, everything appears to be going to plan for the company focused on developing treatments for severe skin disorders.

Looking through the course of trades on Wednesday reveals that the share price decline was triggered by some rampant selling just before lunch.

A single trade of 51,540 shares for $1.5 million started a wave of selling that continued for around half an hour and drove its share price 26% lower.

Considering the Clinuvel share price was up 187% over the last 12 months and trading at an all-time high yesterday, I wouldn't be surprised if one of its shareholders has decided to take a bit of profit off the table.

In addition to this, the selling could also have come from inside the company. Last week CEO Dr Philippe Wolgen exercised 716,642 performance rights at no cost. Two other executives exercised 25,000 performance rights as well.

Perhaps these directors have decided to offload a portion now whilst the share price is high in order to cover their tax obligations further down the line.

If this proves to be the case, the company will notify the market in the coming days with a change of director's interest notice.

Should you buy the dip?

Whilst I think Clinuvel Pharmaceuticals is an exciting company and has a lot of potential thanks to its SCENSSE product, which is a first-line pharmaceutical product aimed at treating patients with the rare genetic disorder erythropoietic protoporphyria, I wouldn't be a buyer at this level.

At the current price I feel that its shares are expensive and do not offer a sufficient risk/reward. For now, I would stick with CSL Limited (ASX: CSL) and maybe even Mayne Pharma Group Ltd (ASX: MYX).

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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