The entire condition suffers from dramatic undertreatment, and thus the economic value of the market is a fraction of what the TAM is. Outlier extreme bull cases rely on this drug tapping into this 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.
I think that some fungus having terbafine resistance means cure rates will never be 100% with terbafine. That does not mean it can't be sold though as most fungus is not terbafine resistant. I'm no expert though. Thanks for sharing!
You didn't include sales in Sweden as possibly offsetting the need to dilute. Has management spoken on the issue if further dilution? Does Mo plan to produce and distribute Terclara in the US or only distribute?
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.
If they only do 150m annual sales I'm not sure they can achieve a 50% margin. In 2017 they had 50m sales with 7% EBIT margins. There's some fixed costs on the salesforce and everything, but once sales reach a number high enough, margins go up. Regarding multiples: I think they sold their old business at 14x EBITDA. What multiple will the market pay on their EBIT? I don't know, since it will be growing so fast for some years.
I don't know how much EBIT they are going to earn, or which margin they will have, or what multiple the market will pay. IMO it is impossible to project the exact amount, but if the bullish case goes well, it should be worth multiple times current market cap. How many times current market cap? I don't know,... maybe 5-30x? Seems stupid but there's no way I can give a better estimate.
Sorry to say I do not have an answer to your question. I'll just wait and see. How I view it, is you are paying a very low price for the bullish case, but there are all the risks I mentioned above.
It started going up a lot once they released the revenue projections for next years including MOB-015. Then it went up even more on M&A announcement yeah
Your TAM is wrong.
I know it's most likely wrong, should be larger. Will change "cream" for "solution". TY
The entire condition suffers from dramatic undertreatment, and thus the economic value of the market is a fraction of what the TAM is. Outlier extreme bull cases rely on this drug tapping into this 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!
Hi Oscar, thanks for sharing this. Any thoughts on terbinafine resistance (https://www.hmpgloballearningnetwork.com/site/podiatry/case-study/closer-look-onychomycosis-and-terbinafine-resistance)?
I think that some fungus having terbafine resistance means cure rates will never be 100% with terbafine. That does not mean it can't be sold though as most fungus is not terbafine resistant. I'm no expert though. Thanks for sharing!
You didn't include sales in Sweden as possibly offsetting the need to dilute. Has management spoken on the issue if further dilution? Does Mo plan to produce and distribute Terclara in the US or only distribute?
I didn't include them because I do not think they will be enough to offset the need to dilute.
Hmm, interesting.
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.
Hi David, thanks,
If they only do 150m annual sales I'm not sure they can achieve a 50% margin. In 2017 they had 50m sales with 7% EBIT margins. There's some fixed costs on the salesforce and everything, but once sales reach a number high enough, margins go up. Regarding multiples: I think they sold their old business at 14x EBITDA. What multiple will the market pay on their EBIT? I don't know, since it will be growing so fast for some years.
I don't know how much EBIT they are going to earn, or which margin they will have, or what multiple the market will pay. IMO it is impossible to project the exact amount, but if the bullish case goes well, it should be worth multiple times current market cap. How many times current market cap? I don't know,... maybe 5-30x? Seems stupid but there's no way I can give a better estimate.
Sorry to say I do not have an answer to your question. I'll just wait and see. How I view it, is you are paying a very low price for the bullish case, but there are all the risks I mentioned above.
Hope you can try Terclara soon!!! Best of luck!
Good summary! But I think the raise in share price of Cipher was more attributable to commentary on M&A rather than MOB-15 news
It started going up a lot once they released the revenue projections for next years including MOB-015. Then it went up even more on M&A announcement yeah