- Skincare treatment specialist Clinuvel Pharmaceuticals (CUV) slumped today after slashing half-yearly profits
- Compared to the same time in 2018, Clinuvel's net profit was 74 per cent lower over the last half-year
- Clinuvel blames some hefty expense increases for the profit dip
- However, the company says the majority of the expenses came from increased strategic investments into the business
- The spending was prompted by Clinuvel's flagship SCENESSE product gaining U.S. Food and Drug Administration approval in October
- Still, shares in the company declined just over seven per cent today, closing worth $21.50 each
Skincare treatment big-cap Clinuvel Pharmaceuticals (CUV) slumped today after slashing half-yearly profits by 74 per cent.
The company was quick to tout its eighth consecutive half-yearly profit, but the $1.06 million net profit for July to December 2019 was 74 per cent lower than the net profit from the same period the year before.
While Clinvel's total revenue increased by 11 per cent to just under $10 million for the half-year, the company said expenses grew by 54 per cent compared to the year before, prompting the profit dive. According to Clinuvel, the increased spending was the result of strategic investments into key areas of the business.
Clinuvel Chief Financial Officer Darren Keamy said despite how it may seem, the extra spending was part of a long-term plan where the company built up cash reserves to eventually carry out future plans without any significant impact on its operations.
"The eighth consecutive half-year profit is a timed and well-managed outcome as it has been sustained in a period where the group further re-invested in the business which, as expected, had an effect on the net profit result," Darren said.
"As part of our long-term plans, growth in the existing revenue base from distribution of SCENESSE in the Eurozone has enabled the Group to self-finance its growth which includes expansion into the U.S.," he said.
October 2019 saw the company's SCENESSE erythropoietic protoporphyria (EPP) treatment drug received U.S. Food and Drug Administration (FDA) approval. EPP is a rare metabolic condition which often results in severe pain and skin damage when a sufferer is exposed to sunlight or even some artificial lights, like fluorescent globes.
SCENESSE treats the condition by increasing the levels of melanin in the skin and acting as a shield against UV radiation.
When the company received the FDA approval, shares in Clinuvel soared and the ASX 200-lister gained over 60 per cent in one day. However, the share price spike was short-lived.
It seems rather than ride the momentum and speedily react to the gains, Clinuvel management took a level-headed approach and used the U.S. regulatory approval to carry out its intended plans for SCENESSE.
In today's financial report, Clinuvel said the FDA approval was a "trigger" for the company to take some initiatives and pursue long-term growth — hence the heightened company spending.
Clinical development costs for SCENESSE skyrocketed 313 per cent over the half-year as research and development were ramped up following the FDA approval. Drug formulation costs almost doubled, while business marketing and general costs increased as well. Compared to the same period in 2018, over which Clinuvel had $5.68 million worth of expenses, 2019 saw the company spend $8.74 million in half a year.
Nevertheless, European SCENESSE sales increased over the half-year, and the company managed to end 2019 with $57.4 million in cash on hand.
While this leaves the company with a decent balance sheet should spending stay at the same level, it seems investors may be waiting for the results of the company's investments to be realised before committing more buy orders.
Today, shares in Clinuvel sunk 7.25 per cent to $21.50 each. Since the October peak of $45 per share, Clinuvel shares have retreated 52.22 per cent.