Moberg Pharma AB: Write-Up Preview

Moberg Pharma AB is a Swedish microcap that offers a potential multi-bagger investment as the inventor of a world-leading nail fungus treatment.

Thesis Summary

Moberg Pharma AB (“Moberg”) is a Swedish microcap pharmaceutical company listed on the Nasdaq Nordic which I believe is a potential multi-bagger investment.

Moberg has produced and is commercialising MOB-015, a superior topical solution treatment for onychomycosis (nail fungus). MOB-015 is currently available for purchase in Sweden only and is sold as a 5ml applicator for approximately SEK 350.

There is a very large unmet market for an effective onychomycosis treatment because the condition affects between 5.5% and 10% of the global population and 14% of the U.S.’ population, equating to between 400 million to 800 million and 14 million people, respectively.

There is also an urgent need for an effective onychomycosis treatment because the condition can significantly lower patient quality of life due to physical and psychological symptoms, including embarrassment, decreased self-esteem, decreased self-worth, and decreased willingness to socialise.

MOB-015’s innovation is that it penetrates the nail plate and delivers high concentrations of its active ingredient, terbinafine, to the infection site which kills the fungus that causes onychomycosis. Other currently available topical treatments are incapable of effectively penetrating the nail plate and delivery of terbinafine orally risks systemic absorption and serious side effects.

MOB-015 is superior to currently available treatment options in the United States based on efficacy, cost, speed of action, ease of compliance with treatment, and safety.

Moberg is commercialising MOB-015 through a combination of direct sales in the United States and sales through commercial partners in Canada, Scandinavia, Israel, South Korea, and Europe. Territories that are currently without a commercial partner include Japan and China. Moberg stands to receive royalties and milestone payments from its commercial partners upon achievement of sales and regulatory targets.

MOB-015 will initially be sold as a prescription drug in the United States at an ex-factory price of between USD $375 - $500 (meaning the price before pharmaceutical value chain mark-ups). Although this relatively high price for the drug poses a risk to unit volume sales, there are two potential mitigating factors. Firstly, Moberg might obtain some degree of insurance subsidisation for MOB-015, meaning that the patient’s out of pocket cost at the pharmacy is far less than USD $375 - $500. Secondly, Moberg could switch MOB-015 from a prescription drug to an over-the-counter drug, charge a lower price, and thereby significantly increase potential unit sales.

The proportion of patients affected by onychomycosis in the United States seeking treatment is low. MOB-015 has the potential to increase the proportion of patients seeking treatment and thereby significantly increase the market for treatment in the United States. Possible reasons for low treatment rates include lack of prescriber knowledge on the condition’s impact on patient quality of life; patient lack of awareness of the condition; and the ineffectiveness, high costs, poor speed of action, difficulty of compliance, and serious side effects associated with currently available treatment options in the United States.

MOB-015 addresses many of the potential underlying reasons for low treatment rates in the United States because it is highly effective, relatively affordable, produces visible results quickly, has a treatment protocol that is easy to comply with, and does not pose the risk of serious side effects. If MOB-015 successfully increases treatment rates in the U.S., Moberg could sell multiple units of MOB-015 to millions of patients in the United States.

MOB-015 is protected by patent until 2032 and Moberg has submitted additional patent applications in the United States and Europe that could extend protection into the 2040s. If these patents are granted, this would significantly increase the magnitude and duration of Moberg’s future cash flows by allowing the company to exclusively exploit MOB-015 for a longer period of time.

Moberg is currently undertaking a second phase 3 clinical trial in the United States to obtain FDA approval. The results of the second phase 3 clinical trial are expected in January 2025. The results are likely to be positive based on the results of the first U.S. phase 3 clinical trial.

A margin of safety mitigating the risk of permanent capital loss resulting from an investment in Moberg is provided by cash the company will receive from a warrants rights issue, milestone payments from commercial partners for sales achievements, and royalties from the sale of MOB-015 in Sweden.

Moberg’s current market capitalisation on a fully diluted basis, assuming all currently outstanding warrants are exercised, is approximately USD $109,732,641.77.

I estimate that Moberg’s intrinsic value is within the following range (USD):

1. Low range: $277,654,975.45

2. Medium range: $1,149,047,017.95

3. Medium-high range: $2,918,771,448.51

4. High range: $6,403,869,646.68

Valuation assumptions are set out fully in the full paywalled investment thesis..

Significant events that will affect Moberg’s valuation outcome include:

1. Whether Moberg obtains FDA approval for the sale of MOB-015 in the U.S. based on the results of the second U.S. phase 3 clinical trial;

2. Whether Moberg’s patent applications in Europe and the U.S. are granted, thereby extending patent protection for MOB-015 into the 2040s;

3. Whether the shortened dosing regimen for MOB-015 is effective and whether it eases compliance with MOB-015’s treatment protocol and thereby increases patient treatment rates; and

4. The extent to which MOB-015 is subsidised by insurance or whether it becomes an over-the-counter product.

Introduction

Moberg is an interesting opportunity and represents a significant divergence from my usual investment ideas. I usually like to invest in large, very high-quality businesses with long operating histories that have become misprised due to a change in short-term sentiment, perhaps due to some significant but temporary and fixable problem within the business. My investment in Meta in 2022 is an example of just such an investment.

Moberg, on the other hand, has not even officially reported revenue from its current product, MOB-015. It is, in that respect, somewhat speculative, in the ordinary sense of that word, meaning that there is a high degree of uncertainty concerning the outcome of certain key events that will determine the business’s future.

I’d like to introduce this write-up with a quote from Warren Buffet which encapsulates the way that I think about the investment opportunity that Moberg represents:

“If only one variable is key to a decision, and the variable has a 90% chance of going your way, the chance for a successful outcome is obviously 90%. But if ten independent variables need to break favourably for a successful result, and each has a 90% probability of success, the likelihood of having a winner is only 35%. … Since a chain is no stronger than its weakest link, it makes sense to look for – if you’ll excuse an oxymoron – mono-linked chains.”

Moberg is not a “mono-linked chain”. There are a number of significant events with independent probabilities that will dictate the degree to which this opportunity becomes a winner. These include those listed above; namely, whether FDA approval is granted; whether the additional patents are granted; whether the shortened dosing regimen is effective; and whether MOB-015 obtains insurance subsidisation or is switched to an OTC drug. The probability of these independent events turning out favourably are, in some cases, capable of estimation and appear highly probable. In other cases, however, they are completely incapable of estimation, partly due to my personal limitations, and partly due to presently available information.

Nevertheless, I still think that the expected value of the Moberg investment opportunity is quite high, even if it is hard to estimate, given that the magnitude of the potential payoff is so high. There are a range of potential outcomes, hence the very wide distribution of valuation outcomes that I have posited in the valuation section of this write-up.

So, what is the significance of these introductory remarks?  Well, my overarching point is that Moberg is by no means a cinch and any prospective investment in the company should seriously consider the possibility of permanent loss of capital, notwithstanding the mitigating factors providing a margin of safety which I have referenced in this write-up. There’s a lot that can go wrong.

That being said, I hope you enjoy reading about this company as much as I have enjoyed researching and writing about it. As always, please keep in mind that this post is not intended to be a recommendation or financial advice. Its purpose is to pique your interest and to act as a starting point for you to begin conducting your own research and for you to verify the facts presented here for yourself. Always DYODD.