Biocurious: While other biotechs scratch around for cash, Clinuvel is accused of having too much

Some investors contend Clinuvel’s mountain of $200 million of cash is excessive and amounts to a ‘lazy’ balance sheet
The company argues the cash buffer protects it against unexpected adversities and – in any event – every cent will be needed for clinical trials
Clinuvel highlights the divide between the sector’s cash have-nots and have-lots

Corporate investor briefings are normally civil affairs, but in the case of skin disorders specialist Clinuvel Pharmaceuticals (ASX:CUV) a recent powwow turned tetchy for a most unusual reason.

The point of contention? The company allegedly has too much money and a balance sheet lazier than a Sunday afternoon snooze on a banana lounge.

The $200 million of cash accounts for one-third of the company’s subdued $580 million market capitalisation.

Chief finance officer Peter Vaughan had told the gathering the debt-free company had enough cash to last for three years, should an adverse event deprive it of revenue from its one approved product.

“We are very proud that we have been built up our cash reserves [from retained profits], not from dilutionary events such as capital raisings or debt,” he says.

“This enables us to look at investment opportunities such as M&A and reinvest in the business.”

Undeterred, one retail investor contended a three-year buffer didn’t make sense.

“It’s about time you looked at doing more for shareholders with it,” he declared.

‘We need the cash’

Annoyed by this contention, management argues it potentially has the need to fund two phase III studies for indication extensions for its drug, currently approved for the rare sun intolerance condition erythropoietic protoporphyria (EPP).

The company would look a nong if it encountered trial delays – a common occurrence – that forced it to raise dilutive equity or debt on unfavourable terms.

“It would be very unusual for a biotechnology company to go too far in returning funds,” Vaughan says, adding that institutional investors reckon Clinuvel is the envy of other biotechs.

In 2021 it announced a$175m expenditure program and there’s $29 million more to spend.

Meanwhile, Clinuvel reported interim net earnings of $14.1 million, 29% higher, marking the seventh consecutive half-year of profitability.

Helping the ‘shadow chasers’

Scenesse is the world’s first drug for EPP, an inherited disorder affecting about 5,000 to 10,000 sufferers globally.

Dubbed ‘shadow chasers’, EPP sufferers can’t go out in sunlight without incurring painful reactions and burns.

European regulators approved Scenesse for adult EPP use in 2014 and the company launched the drug there in 2016.

The FDA approved the drug in 2019.

A subcutaneous formulation of the peptide afamelanotide, Scenesse binds to the melanocortin-1 receptor to activate protective melanin.

About the size of a rice grain, the Scenesse shots are injected subcutaneously in a 16- milligram dose and last for two months.

While it’s a rare disease, it’s been a lucrative one for Clinuvel given the widely reimbursed treatment cost is $90,000 to $140,000.

Expanding the Scenesse market

Clinuvel is eyeing European regulatory assent to expand usage to 12–17-year-old sufferers.

The company is also pushing to have the current dosage of four times a year increased to six times, arguing there’s enough data to show this would be safe and effective.

Clinuvel investor relations head Malcolm Bull says the company has increased patients and subscribers in Europe and North America and plans to enter the Colombia and Argentina markets via a distributor.

But nothing stands still and the company is eyeing other indications as it builds a more diversified “house of melacortins”.

Tackling the ‘Michael Jackson disease’

Clinuvel’s “immediate and largest opportunity” is the more common vitiligo, a pigmentation disorder most prevalent among darker skinned populations.

Causing ugly skin blotches, Vitiligo affects 45 million people globally, the late singer Michael Jackson being a ‘celebrity’ sufferer.

The company is carrying out two, 200-patient phase III studies.

Results to date suggest Scenesse could be used in combination with narrow band ultraviolet therapy, witt the drug re-energising the repigmentation process.

“We are quietly confident of good results,” Bull says.

Size of the prize

Clinuvel estimates vitiligo affects 1% of the US population, or 3.3 million people.

The company believes 66,000 people might be suitable for the treatment.

Assuming an initial penetration of 6000 patients, that adds up to a $500 million a year market in a $4.5 billion total addressable market.

In comparison, EPP is a circa $300-million-a-year market.

Meanwhile, Clinuvel has other earlier stage programs, including for xeroderma pigmentosum (a hereditary condition leading to a very high risk of skin cancer and other medical problems).

Clinuvel is also testing the natural hormone neuracthel (ACTH) as a skin repigmentation treatment.

The company has also completed a proof-of-concept program for arterial ischaemic strokes, but the program is “not an immediate focus for the company”.

Back to the future

Whilst priding itself for its clinical rigour, Clinuvel these days is engaging not just with scientists but beauty influencers and Hollywood stars such as Lady Gaga.

That’s because the company has launched an over-the-counter photocosmeceutical range, including supercharged sunblock and a bronzing product.

It’s a case of back to the future for Clinuvel, which started out as safe tanning product developer Epitan.

When it became clear the FDA would knock back the product, the company turned to a more ‘serious’ medical focus under new CEO and former surgeon Philippe Wolgen.

Armed with more robust clinical data, the company is having another go at the body beautiful market – albeit for folk especially vulnerable to the sun’s rays.

Clinuvel is vying for a $50 million share of the $6.5 billion-a-year cosmeceuticals market.

Itching to acquire

Currently on sick leave and scheduled to step down by next June, Wolgen would like the company to make an acquisition and it has formed a small team to look at opportunities.

Bull says a purchase could be by way of a drug manufacturer, or an “innovative tech that may benefit from Clinuvel’s experience.”

“We haven’t consummated an acquisition yet, but importantly we have earmarked funds.”

Cashed-up unicorns

Clinuvel’s cash ‘problem’ highlights the gap between a handful of wealthy, commercialised biotechs and most of them who struggle to raise a couple of million to keep the lights on.

Share buyback schemes have become an unlikely status symbol for the cash have-lots – and also a sign that boards consider their shares to be undervalued.

To soak up at least some of that contentious cash, Clinivel this month renewed a scheme to buy back up to 1.5 million shares (at a cost of around $17 million at the current share price).

Share buybacks advantage shareholders by reducing shares on issue and thus bolstering earnings per share.

The giant ResMed (ASX:RMD) and Cochlear (ASX:COH) have also initiated share buybacks, as has Neuren Pharmaceuticals (ASX:NEU) and Mach7 Technologies (ASX:M7T) (despite having a modest $23 million cash balance).

Telix Pharmaceuticals (ASX:TLX) sits on cash of $710 million, albeit with a packed clinical program to fund.

Subject to a $600 million takeover offer, Mayne Pharma (ASX:MYX) has $150 million in the bank.

Clinuvel’s cash abundance has hardly helped the price of the shares, which are one quarter of their September 2021 peak. They have also declined 25% over the last 12 months.

Some investors are also worried about a potential rival product, Disc Medical’s bitopertin which missed a phase II endpoint but is expected to enter phase III trials.

Vaughan says management’s not for turning and won’t indulge in a “cash splash” – a good example for our pollies currently on the hustings.