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Why did the Clinigen share price collapse last week?

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Businessman looking at a red arrow crashing through the floor
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The Clinigen (LSE:CLIN) share price took quite a tumble last week. Within the space of a day, it crashed from around 836p to 615p. That’s a 26% drop! Consequently, looking over the past 12 months, the stock has fallen by 25% as well. So, the question is, what caused this sudden decline? And is this actually an opportunity to snatch up some shares at a discount?

The crashing Clinigen share price

Clinigen is a pharmaceutical drug and services business that’s been around for over a decade. Despite its relatively young age, the management team has managed to establish a diverse portfolio of products and clients, the latter of which it continues to expand. More recently, it signed a new agreement with Synairgen to help launch SNG001 – a new Covid-19 treatment.

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Beyond assisting other pharmaceutical companies, the business also has some of its own drugs on the market. One is Proleukin. The firm acquired this medicine in 2019 for $120m, and it is used for treating metastatic renal cell carcinoma (kidney cancer). But why does this matter?

Last week, Clinigen released a trading update that wasn’t particularly well received by the market, as was clear by what happened to the Clinigen share price. Due to the healthcare industry being primarily focused on tackling the pandemic, spending on cancer treatments saw some significant decline. This is particularly bad news as a large portion of its profits come from Proleukin.

Despite mitigating the impact of Covid-19 disruptions on its revenue stream, underlying profits have been affected. And the company revised its guidance for EBITDA to £114m-£117m for 2021. That’s around 12% less than analysts were expecting. Seeing a sharp decline in the Clinigen share price is therefore not too surprising to me.

Is this a buying opportunity?

Seeing a company slash guidance is quite frustrating. However, in my experience, these often present some of the best times to buy shares, providing there is no serious underlying long-term problem. In the case of Clinigen, the reduction of profits appears to be linked to disruptions of the global pandemic. When taking a step back, I feel this is ultimately a short-term problem. 

What’s more, despite this reduced performance, the level of cash conversion appears to have been largely unaffected. As a result, Clinigen should be more than capable of continuing to pay down its debts. In fact, the management team has stated that it expects net debt to fall below £330m by the end of 2021. That’s around £20m less than what was reported in December 2020.

All things considered, this does look like a buying opportunity for my portfolio. With the vaccine rollout progressing relatively quickly across the western world, the disruptions from Covid-19 seem to be slowly disappearing. And as Clinigen can return to distributing its services and cancer therapies, I believe its share price could begin to rise once again. 

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Zaven Boyrazian does not own shares in Clinigen. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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