Moberg Pharma: The future of Nail Fungus Cures

Sometimes I source things from various areas of the internet and this one came from “leftfieldinvesting” (@LeftField_FHRS on twitter/x.com). I haven’t read his substack as I rarely read other write-ups since I figure it will most likely skew my opinion of an investment so I will most likely offer a different way of looking at Moberg, so to get all sides of this be sure to go check him out. My opinion/analysis is completely my own and I merely got the idea of looking into Moberg from his insight on twitter. He’s highly intelligent, talks about fungus medications, and dreams of private prisons way too much but he’s definitely worth a follow and you should check him out. While you’re at it, you can check out my twitter, @jaro_rogue.

Moberg Pharma ($MOB.ST)

All numbers are in USD unless otherwise stated.

The fun topic of today is a nail fungus company based out of Sweden, Moberg Pharma. Moberg is a specialist in toe fungus, having just sold Kerasal Nail in 2019 for $155m USD. Their new product is easily far and above the best product in existence to treat toe nail fungus.

Toe Nail Fungus Background

It is important that readers understand more about the background of toe fungus before we get into the nitty gritty details of the new product and future earnings/value.

First let’s discuss what toe nail fungus is. It tends to be a fungus that acts no different than say athletes’ foot or jock itch. Usually, the fungus embeds itself into the nail bed at which point it makes extremely hard to remove. This usually results in the nail turning a yellowish color while the nail texture becomes powdery and flakey. Over 10%-20% of the global population has toenail fungus and it is even more prominent in older individuals.

Current at home treatments tend to fail or last only temporarily. This is when individuals turn to over-the-counter (OTC) treatments or prescription drugs/treatments. Basically, most toenail fungus infected individuals are basically stuck with it unless you’re in the lucky 10%-30% who happen to get a treatment to work. Even if it is cured it could still come back via athletes’ foot or other fungal infections.

Current Competitors/Treatments

Most treatments flat out suck for treating toe fungus. If you’re lucky you will have a topical treatment that might have a 54% cure rate which takes a year of treatment. Check the below chart to view the cure rates of current treatments:

Clinical Cure is purely how the nail looks and Mycological cure means the nail is fungus free. Over time the nail will be extremely improved as a new nail grows in if the fungus is gone. This is over a 52 week period.

 Now if you notice on the top right, Oral Terbinafine has a nearly 70% cure rate which is fantastic. The major issue is that there are severe side effects, or at least there is a long standing belief of severe side effects, that can occur with Oral Terbinafine which can range from common side effects (taste loss, gastrointestinal issues, skin issues) to less common but severe side effects (severe liver problems, blood disorders, severe allergic reactions, Lupus-like syndrome, and depression). The side effects are bad enough that 7/10 doctors will not recommend Oral Terbinafine.

MOB-015

Moberg has come to the rescue with their incredible product, MOB-015 (retailing as “Terclara”). This topical Terbinafine solution to toenail fungus has an unprecedented cure rate that you rarely see with Topical solutions. In its two phase-3 trials it had a cure rate of over 70% in both Europe and North America at the end of 52-weeks with 70% (or greater) of participants reporting improved toenails by week 12. This product has no major side effects and is very well tolerated with the only known side effects to be local skin/nail issues and in very rare cases allergic reactions. The concentration of terbinafine is 1000x higher in the nail and 40x higher in the nail bed when treated with MOB-015 compared to oral terbinafine.

MOB-015 is currently undergoing its second trial in North America that will allow it to be FDA approved. This study is expected to finish in January 2025 and Moberg is trying to reduce the treatment time down to 8-12 weeks (applied daily) which would be incredible, as most topical toenail fungus treatments take more than 6 months and are rarely followed through. They are waiting on a global launch to wait for this study for advertising purposes.

Launch

It is safe to say that Moberg has created the best toenail fungus treatment by an extremely large margin and they have a massive audience to capture. Terclara is currently available in Sweden ahead of peak treatment season (before summer) and has just infused itself with $9.4m via a right offering. With the revenue of Terclara in Sweden beginning to come in along with the rights offering ending, dilution risks seem to be relatively mitigated once Moberg’s warrants run out. For now, it is most likely best to use their diluted shares outstanding for any valuation purposes and assume that there won’t be much future dilution.

With the new cash combined with the cash flow coming from the new Terclara launch it is now a waiting game until the study comes to a close in 2025, at which point they will use the new study to advertise when they launch in Europe and Canada. Using the following chart we can see the companies that Moberg plans to partner with in the near future:

Moberg Partners for Global Rollout

To try to figure out the potential for TAM we can check out their current partners and apply this to the rest of the world. This is from an investor presentation in March 2023, and it is safe to say that they lowballed these numbers incredibly hard.

What’s the True TAM

Moberg Estimated TAM and Estimated Pricing

So how do I know that Moberg is vastly undervaluing their market?

First, let’s look at the Canadian market which we’ll assume is priced closer to $100 USD per unit, based off of the current market share leader. The current leading competitor, Jublia, owns 95%+ of the prescription toenail fungus market in Canada. Jublia is a topical treatment that has to be applied daily for 48 weeks and it has roughly a 54% mycological rate in studies. Jublia costs $110/unit.

Obviously, MOB-015 is better in every way but it is also going to be selling at 10% less of Jublia. Now on Moberg’s presentation slide above it shows that Cipher has a $58m TAM which has already been updated by Cipher to a true TAM of $67m. Jublia owns 95% of that TAM and market share is expected to be completely taken over by MOB-015 within 2-3 years according to Cipher. I believe it will be even faster, but we’ll assume that’s true.

Now the next part of the equation is figuring out what the actual TAM is (again, just focusing on Canada for now). Knowing the cost of Jublia and the current annual market, we can assume that roughly 16% of the ~3.825m Canadians with toenail fungus are being treated with Jublia annually. MOB-015 will take this whole market share and could possibly even increase it up to 20% as individuals and doctors start heavily recommending it. This would make a TAM of $75m. But we’ll stick with the 16% number.

We can probably assume that almost every single developed country would have similar statistics. Which would line up with their assumption about Japan being a $290m market and Korea being a $40m market.

Now the next huge miss in my opinion is that their current market share in the USA estimation is that they will only capture 10% of all prescriptions, and based off of my estimations of TAM then they are only capturing 2% of all individuals with Toe Nail Fungus in US. This is a MASSIVE undervaluation in easily their most important market and even at $370/unit they could probably capture at least 8% of individuals who have fungus (or 40% of the prescription market) annually at the very least. This would make their TAM in the US about $1 billion annually. This blows out their projections of $250-$500m and I think we made some insanely conservative assumptions. This would mean they were treating 2m people in US and when Jublia (a much worse product) captured roughly 25% of the prescription market in 2015, they had roughly 1m Americans and brought in $336m in revenue.

Estimated Treatment Populations, possible revenues in each country, and estimated costs. Large percentage of Europeans due to cheapness of drug and being OTC

What’s the Value of MOB-015

So obviously the milestone payments and royalties received from their partners will be great, but the true money maker will be US operations, similar to Kerasal Nail, as they are directly selling to the US. Kerasal nail took nearly 10 years to hit its peak of $41m/year in sales and I think due to how prescription drug uptake works, Moberg will experience a much faster growth in sales with a much higher potential to begin with. If they take 5 years to grow to $1 billion in sales, 50% of the US prescription toenail fungus market, and operate on the same margins that Cipher plans to in Canada, then they are extremely undervalued.

Cipher expects a 55% EBIT margin from MOB-015 and so it’s probably safe to assume that Moberg will experience a higher margin, but we’ll play it safe and assume it’s only 55%. This would give us roughly $550m in EBIT with $385m in earnings after taxes of 30%.  Even if we only assume they capture the 25% of the prescription market like Jublia did then that’s still ~$200m/year in earnings.

Again, I think that is an extremely conservative estimate. The truth is that I don’t know with 100% certainty what their upside, since this is semi speculative, is but I know it is way above their current market cap. I can value them based on a ramp up of $50m/year in revenue until they hit $200m in earnings and this gives a valuation of $1 billion with a 10% discount rate. That is obviously nowhere near their potential. Kerasal Nail was sold for $130m and it had $41 m in sales growing at 20% a year. I think a reasonable guess of valuation for them (which should be taken lightly) would be roughly $1 billion but they could have upside of much more than this.

The real point is that whatever estimate I come up with the value is much higher than what the stock is trading at, which is a $70m market cap. With 46.6m diluted shares and an estimated value of $1 billion this gives a value of $21/s or SEK 228/s. This is 10x the current stock price of SEK 25. This margin of safety also allows for some protection from future dilution.

Management has already proven they can deliver, and they have followed their timeline perfectly for MOB-015 as well as with their previous projects. I expect the rollout of MOB-015 to be executed extremely well based on management’s past execution. Interest in Sweden will be extremely telling and as well as interest with pan European rollout and Canadian rollout.

Conclusion

MOB-015 has a very high chance of taking over a significant chunk of the European OTC market and the prescription market across the rest of the world. This could lead to hundreds of millions if not billions in revenue for a company only valued at $70m. The main point of this write-up was merely to show how easily Moberg could be much more than my $1 billion estimate. No matter what happens Moberg offers a ton of upside and as revenue comes out in Sweden and the European/Canada rollout comes in 2025 followed by direct sales to the US, the value of MOB-015 will skyrocket and Moberg’s stock along with it. I’m honestly not sure if my valuation of $1 billion is accurate but it just screams that this thing is extremely undervalued. This valuation makes absolutely no sense and eventually it will move back up to some semblance of reality.

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