Despite no major announcements, shares in Clinuvel Pharmaceuticals (ASX: CUV) have declined roughly by another 15% since reporting interim results in February 2025. The company continues to focus on its direct distribution strategy, making its main product, Scenesse available at more US specialty centers.

Why it matters: We suspect the market is likely too pessimistic on the speed and extent of Clinuvel’s commercial rollout of Scenesse for its existing indication, which contributes 80% to our fair value estimate.

  • However, we expect Scenesse to be relatively protected from competition based on its patent portfolio and forecast a five-year group EPS compound annual growth rate of 10%. Our unchanged fiscal 2025 EBIT forecast of AUD 45 million implies stronger seasonally weighted demand for Scenesse in the half ended June 2025.
  • We think the market is underestimating potential new earnings streams. While other indications like vitiligo are still in clinical trials, early efficacy and safety data when used with phototherapy are positive. The addressable US vitiligo market is 20 times larger than its current indication.

The bottom line: We maintain our AUD 18 fair value estimate and earnings forecasts for no-moat Clinuvel Pharmaceuticals. Shares are materially undervalued as we remain optimistic about demand for Scenesse and margin expansion.

  • We expect market share gains from further direct distribution. Clinuvel is in over 90 US specialty centers and plans to reach 120 by the end of 2025 to improve access. We forecast combined market share across Europe and the US to increase to 37% by fiscal 2034 from an estimated 16% in fiscal 2025.
  • Our forecast five-year group revenue CAGR of 11% stands. We forecast EBIT margin to expand to 49% by fiscal 2034 from an estimated 46% in fiscal 2025 on continued operating leverage. First-half fiscal 2025 expense growth was just 2% with underlying EBIT margins expanding 500 basis points.

Clinuvel shares appear undervalued as sales in core product continue to grow

Clinuvel’s strategy revolves around expanding its direct distribution for adult erythropoietic protoporphyria, or EPP, patients. This involves training and collaborating with doctors and accrediting the specialist skin centers they practice in to prescribe Scenesse. By focusing on distribution, Scenesse is more accessible to a greater number of patients, and supportive of organic top-line growth.

Clinuvel also focuses on increasing coverage and reimbursement support. In the US, Scenesse is well covered by over 100 national and local private insurers, as well as Medicare and Medicaid. Billing codes are in place to reimburse EPP diagnosis, the drug, and implant administration, allowing for a streamlined insurance claim process. In Europe, Scenesse is covered by several payors, but more limited than in the US. In the UK and Australia, the drug is approved but not covered by national insurance and therefore not yet commercially available to patients.

The firm invests heavily in its in-house research and development, roughly 30%-40% of sales, largely to explore and receive regulatory clearances for applications of Scenesse products beyond the adult EPP market. In the near term, the company is aiming to receive label expansion for patients 12-18 years old who make up roughly 10% of all EPP patients. The firm is also conducting clinical trials for the use of Scenesse for other indications including xeroderma pigmentosum and vitiligo. We incorporate a 33% probability of vitiligo approval in our base case, and if successful, Clinuvel’s existing distribution network of specialist skin treatment centers can support growth into these new markets.

Apart from Scenesse, Clinuvel is also early in developing additional melanocortin pharmaceuticals including Neuracthel, a generic drug that produces cortisol for children with infantile spasms and adults with multiple sclerosis, and Prenumbra, a potential treatment administered after a stroke event. Clinuvel is also in the early stages of launching a range of topical consumer products, including a consumer-friendly risk-free tanning product and a cellular DNA repair cream. We think these efforts are likely to drive incremental sales.

Bulls say

  • Scenesse is the only approved treatment for phototoxic reactions specifically associated with a rare genetic disease called EPP and is fairly protected in the near-term from competition.
  • The company requires little invested capital and is expected to generate very high returns as it continues to expand its direct distribution.
  • Clinuvel aims to receive approval for Scenesse label expansion for adolescent EPP patients and shows promising signs to utilize its technology for other indications.

Bears say

  • There is high uncertainty on the success and timing of Clinuvel’s efforts to diversify its earnings beyond its single product, Scenesse, currently approved for the single niche EPP adult market.
  • There appears to be no significant switching costs for physicians and patients to adopt potential competing products.
  • The existing patents do not provide extended cover for Scenesse for EPP and expire from 2026.

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Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

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Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.