Moberg Pharma - My Research Notes
Their nail fungus drug could be a very profitable venture.
DISCLAIMER: This article is not a recommendation to buy or sell any financial instrument. Please do your own research. My analysis could be totally wrong and the stock could have negative returns. This information is for general purposes only and should not be considered as investment advice. I am not a financial advisor and do not offer investment recommendations.
DISCLOSURE: I currently own a small position of Moberg Pharma $MOB.ST shares.
As I was reading so many nail fungus tweets on X, I decided to do some research on Moberg Pharma AB, the nail fungus treatment pre-revenue company.
DakotasTwits (make sure to follow him) found the idea and Rogue Funds shared a free writeup about Moberg.
You must first read Rogue Fund’s writeup before continuing this read, else you will not understand anything.
I’ve spent some hours researching and wanted to share my math and findings with you, but in no ways I am an expert on the topic and I could be totally wrong. Although some accounts on X are sizing this position big, it will be a small position for me since there are dilution and permanent loss risks. As you will see, there are many “ifs” in this idea. There sure is a big potential if the positive outcome materializes but I could also see it ending up really bad, so the size of my position will be small.
Biggest risks of Moberg Pharma AB are:
-Aggressive dilution to fund operations
-MOB-015 not reaching sales expectations
-Problems or delays with FDA approval in the US or Phase III study results
I usually do not invest in any idea where I think there is risk of permanent capital loss as there is with Moberg but I made an exception due to the huge potential and successful current developments in MOB-015. If it is not successful, my maximum loss will be 2% of the portfolio.
EDIT (June 2024): Finally I increased the position to 4% on very positive sales data in Sweden
Pre-2019 Moberg Pharma
In 2019, Moberg Pharma divested it’s revenue generating business for 1.4 billion SEK and used the proceeds to pay down debt (600m SEK) and pay a fat dividend. After the dividend was paid, the equity got diluted to oblivion.
Since 2019, Moberg has been aggressively diluting shareholders as it turned into a pre-revenue company with recurring costs that is issuing equity to finance operations. In 2023 there was a 10:1 share split. The split-adjusted shares outstanding are:
Shares outstanding 2019: 1.84m
Shares outstanding 2020: 2.04m
Shares outstanding 2021: 4.55m
Shares outstanding 2022: 10.08m
Shares outstanding 2023: 28m
Fully diluted shares outstanding 2024: 46.6m
Current share price: 22.60 SEK
Fully diluted market cap: 1053m SEK (99m USD)
Obviously, the biggest risk here is getting diluted to oblivion. How much can the company dilute shareholders in the future? Let’s see:
The difference between shares outstanding in 2023 and fully diluted shares outstanding are 17,470,149 + 664,370 warrants that can be exercised at a 30% discount to Moberg’s share price from May 20, 2024 to May 31, 2024.
IF Moberg’s share price remains at 22.60 SEK, and if my math is correct, Moberg would receive 287 million SEK in exchange for a dilution from 28m to 46.6m shares:
Proceeds = 70%*22.6 SEK*(17,470,149+ 664,370) = 287 million SEK (26.9m USD)
Of course, if Moberg’s share price is lower in May, they will receive less, and if it is higher, they will receive more. A big risk is Moberg Pharma’s share price being significantly lower in May resulting in significantly less capital raised. Right now, Moberg’s balance sheet looks like this:
2023 Cash and cash equivalents: 60m SEK
2023 Total liabilities: 24m SEK
For the past 3 years, operating loss was 20-30m SEK/year, so with the proceeds of this dilution, they will have more than enough to cover recurring costs for some years. Of course, this costs will increase as they invest in the launch of MOB-015, but they should also get additional revenues and milestone payments.
One of the biggest costs and cash burn has been the ongoing US Phase 3 study to which Moberg has said “we expect lower expenses for the study going forward”. Phase 3 study is expected to end in January 2025.
If we assume Moberg can raise capital at around today’s price of 22.6 SEK, future dilution risk is mitigated with current funds and diluted share count.
MOB-015 timeline
As you can see, current timeline for MOB-015 is:
2024: MOB-015 is already being sold in Sweden under the Terclara brand
2025: Obtain Phase III results in January 2025, then file for FDA approval
2026: Launch in Europe with Bayer then obtain FDA approval for selling in the US later that year.
2027: Launch in the US
Moberg could experience delays, and there is always the possibility of unexpected events, but, as MOB-015 has already been approved in Europe, I see positive signs of it being approved in the US.
If Moberg can use milestone payments and royalties from Bayer and other partners to finance it’s US operation, I can see it being very successful with limited future dilution.
How to value Moberg Pharma?
It’s impossible to project Moberg’s revenue and earnings to asses an accurate valuation. If you assume 46.6m shares outstanding at today’s share price of 22.6 SEK you are paying roughly 100m USD for Moberg and Moberg will have over 27m USD in the balance sheet.
If Moberg is successful with MOB-015, it could receive up to 70m USD in milestone payments from their partners, additionally, they would receive royalties as a percentage of partner sales. That alone would justify the current market cap and will allow Moberg to fund it’s US expansion.
Cipher Pharmaceuticals, a public Canadian company with a market cap of 158m USD has been going vertical with the expectation of selling MOB-015 in Canada and taking almost the entire market from Jubila, a lower cure-rate product than MOB-015.
Cipher is projecting that sales of MOB-015 will hugely increase their revenues and profits starting in 2026, providing them with additional c.33 million USD in revenues by 2027:
As Rogue Funds says, the biggest part of the bullish case is if Moberg is successful with direct sales of MOB-015 in the US.
If Cipher is expected to sell well over 30 million USD per year of MOB-015 in Canada, just two years after it’s launch, it would be reasonable to expect that Moberg will be able to sell multiples of that amount in the US, as the population in the US is 9 times bigger. Cipher says Canada’s TAM is 67 million USD, so US TAM would be 600 million USD if it was to be 9x larger.
Moberg has said they can sell 150-300 million USD per year of MOB-015 in the US, but it is possible that they could do much more. I expect this sales to have a very high gross and operating profit margin, similar to Cipher Pharmaceuticals which has 80% gross margin and 50% operating margin.
If successful, it is clear that Moberg Pharma can be a multibagger with a combination of royalties, milestone payments and direct sales. But just remember all the risks I have explained above.
Notes on the science
MOB-015’s mycological cure rate is 69.9% in the first year, while complete cure rate is only 4.5%, but as noted below, complete aesthetical cure will take a bit longer as the nail needs to grow again. MOB-015 is not perfect but the solution is better than other products and has less side effects than oral terbafine.
I accept negative feedback on the idea and would be very happy to hear any bear case. Please leave a comment below.
Kind regards,
Oscar.
UPDATES:
30/06/2024: New well written writeup posted by SharpeStack.
12/07/2024: Bull case in the USA: The bullish case in the USA could look something like this
Great writing, Oscar, thank you!
My back of envelope is that if they can penetrate the US market at even just $150m annual sales, for 50% EBIT margin, then $75m each year from US alone...even if you just put a modest 10x EV/EBIT multiple on that, we are talking EV of $1.5bn as opposed to what, $100m today even after the run-up? And that's from US sales alone, no royalties from other markets. Or am I delusional? Will the multiple be lower because this company is a one-trick pony and the patent protection will run out at a certain point? That is, by the way, a piece of the puzzle I haven't heard anyone discuss yet - any intel on how long they can keep protection for the asset?
By the way, anecdotal evidence - I am a heavy hiker and developed nail fungus myself a few years ago. A visit to a GP, and I was advised there are just more or less useless treatments on the market, and that, yes, I can try, but it will eventually just come back, because as a hiker with a lot of long sweaty feet walks, especially in the summer, I am a highly vulnerable group. So I just gave up. Yes, I am part of the undertreated group that will definitely buy Terclara once it reaches my market.
Hey Oscar, I really like your writing so thanks for sharing. I drew the same conclusion as you; from what I read, there were a lot of ifs. I always seem to lose whenever an investment relies on something happening. Definitely interesting and a lot of positives so will keep an eye on it.
Keep the articles coming!