The Clinuvel Pharmaceuticals Limited (ASX: CUV) share price fell more than 10% last Friday. Despite the weak price action, a research report from corporate advisory firm Moelis Australia has painted a bullish outlook on Clinuvel and upgraded the pharmaceutical company to a buy rating.
What's behind Clinuvel's falling share price?
The Clinuvel share price was one of the worst performers on the ASX in February, tanking more than 35% for the month. The biopharmaceutical company has not been immune to market fears over coronavirus. Clinuvel has not had any direct impact from the virus, however Italy is the company's 4th largest market in Europe and an outbreak of coronoavirus in the country could reduce patient numbers. In addition, Clinuvel disappointed the market earlier last week after reporting its half-year results.
How did Clinuvel perform for the half year?
Clinuvel's half year report was highlighted by an 11% increase in total revenue of $9.9 million. The company's revenue growth was fuelled by sales of its flagship Scenesse product in the European market. Despite reporting its 8th consecutive half year profit of $1.05 million, net profit was down more than 73% from the prior corresponding period.
Clinuvel management addressed the decline in net profit as the result of investments in key areas of growth. Clinuvel saw a 54% increase in expenses for the first half in an effort to expand into new markets. The heavy investment in growth follows the decision of the US Food and Drug Administration (FDA) to approve the sale of Scenesse in the US.
Why are analysts bullish?
Despite earnings coming in weaker than expected, analysts from Moelis are bullish on Clinuvel continuing to grow as penetration increases in new markets. Although there were no new market launches in the first half, Clinuvel expects to launch in 2 small EU markets in the second half.
Analysts expect a 15% revenue growth for FY21 in Clinuvel's German market and also increased sales in the US. According to the report, Clinuvel was always expected to invest heavily in expansion once FDA approval was achieved. Investment in research and development is expected to increase and analysts believe that any success in the US will be well received. As a result, Moelis have slapped a target share price of $32.15 for Clinuvel.
Foolish takeaway
Clinuvel is a global biopharmaceuticals company that develops drugs designed for the treatment of severe genetic and developmental skin disorders. The company's flagship Scenesse drug is designed to prevent phototoxicity in patients with erythropoietic protoporphyria (EPP). Following FDA approval, Clinuvel's share price rocketed to all-time highs of $45.88, but since then the company's share price has tanked more than 60%.
In my opinion, Clinuvel has great long term potential, however I would not rush to buy shares just yet. It is still uncertain the effect that coronavirus will have on the company and there could be more downside. I think a prudent strategy would be to keep Clinuvel on a watchlist and wait for its share price to consolidate before making an investment decision.
