MOB.ST - Moberg Pharma

[NewbieD]

Traded on Nasdaq OMX.

 

The company is focused on the market for OTC drugs for fungus in feet/nails (yummy) and a few brands in neighbouring markets such as topical pain relief. Market cap is about $90m. 25 employees in Sweden and 10 in the US.

 

Three value creating legs

- Own direct sales in the US - 75% of sales. 30 000 sales points. Wahlgreens, CVS etc.

- Sales via distributors in 40 countries - 25% of sales

- Innovation of new products.

 

CEO started the company after a few years at McKinsey and in the healthcare industry and has been in his role since 2006. His shareholding is on the low end of what I’d like but seemingly a large share of his monies- about 4% of the company.

 

They own several brands, and have been able to acquire brands from Bayer, Sanofi and Prestige Brands that are too small for them and make these more successful. Five acquisitions and one divestiture in four years. Kerasal is the current main product for Moberg and seems to be a tied market leader with a product from Valeant. They now have an option on purchasing an additional brand called Dermoplast from Prestige Brands. They are looking to extend their bond issuance within their existing bond framework (don’t known proper term for this) to buy this. Leverage will be almost 4,5X EBITDA after this. It seems the reason they are able to make money buying these is they are too small for the entities that sell and have gotten too little love.

 

Their product candidate MOB-015 is in phase III (700 patients in the US) and had great phase II data looks like it has a decent chance of being the best product in its category with sales of $250-500m annually. The study seems likely to work since it’s a topical version of an existing pill that’s a prescription drug - and it showed efficacy in phase II.  Their other product candidate BUPI is for cancer patients with mouth pain due to radiation. Annual sales can be - maybe $50-100m.

 

Valuation

Earnings this year looks to be about 40 MSEK. 50 MSEK after the Dermoplast deal by my estimate of a turnover of $12m and profit margin of 10%. Given growth potential in Asia and an increasing market share in the us this could be worth 18X or 900 MSEK, just over the current market cap.

 

 

MOB-015 + BUPI product candidates. Give a 25% chance of success (I think it could be higher) for additional sales of $400 mUSD annually at 25% EBITDA from 2018 = $25m yearly profit. Discount for time + it needs to ramp up + some cannibalization - $10m = 90 MSEK. Put PE 10 on this since patents expire in 2032 => 900 MSEK = 100%+ from current price.

 

Timing - should be well on it's way to realize valuation if study goes well at end of 2018.

 

Q3 report http://d1q0gh225dp9f5.cloudfront./sites/default/files/moberg_pharma_q3_tc_presentation_161108_1.pdf

 

Video - swedish, english slides hnetttp://beta.redeye.se/events#/videos/ykvrjwj6

 

Thoughts? Valuation method I employed reasonable given the debt level? How would you verify a claim for the sales potential of a product candidate?

 

[kab60]

The first thing I'd do was researching price hikes of acquired drugs. Former McKinsey CEO, high leverage makes this sound like a potential nano-Valeant. Another thing; if I was to invest in pharma, I'd prefer a portfolio of drugs that people are dependant on. Not toenail fungus cream (Valeant product Jublia was/is incredibly expensive, I believe. And I seem to recall it hardly works).

[NewbieD]

Thanks, idea about checking prices is helpful.

 

This is mostly OTC drugs, so they're not very costly. Possibly they've made price hikes but the current prices on Wahlgreens are $7-$20. So the exposure to pricing regulations should be 0?

 

The products are also on amazon: https://www.amazon.com/Kerasal-Nail-Fungal-Renewal-Treatment/dp/B007ADOL28/ref=pd_sim_121_2?_encoding=UTF8&refRID=P4F11X3YHHKBFBCMJ1WQ&th=1

https://www.amazon.com/Kerasal-Intensive-Repair-Exfoliates-Moisturizes/dp/B000GCNC2U/ref=sr_1_3_a_it?ie=UTF8&qid=1478975107&sr=8-3&keywords=kerasal&th=1

https://www.amazon.com/Dermoplast-Pain-Relieving-Spray-2-75-oz/dp/B0006GWSTO/ref=sr_1_1_s_it?s=hpc&ie=UTF8&qid=1478975356&sr=1-1&keywords=dermoplast

 

Reviews look pretty good.

 

Jublia seems like a shit drug. Apparently it costs like $400 for 4 ml. A bottle lasts a week and 48 week is a common treatment time (you have to treat your nail while it regrows so treatments are long). So $20000.  Crazy!

 

The Kerasal treatment takes 2-3 bottles it seems, so about $50 and seems to work for a decent number.

 

Seems safe to say the margin on The MOB-015, if phase III goes well, will be higher than their other products..It showed superior results to Jublia in phase II (quicker results, higher cure rates, less side effects). So should be possible to price in the vicinity.